What does the y-intercept represent in a cost graph?

The y-intercept in a cost graph represents the fixed costs when no units are produced or sold.

In more detail, the y-intercept is the point where the cost graph crosses the y-axis. This point indicates the total cost incurred even when the production or sales quantity is zero. These costs are known as fixed costs because they do not change with the level of output. Examples of fixed costs include rent, salaries of permanent staff, and insurance.

Understanding the y-intercept is crucial because it helps businesses determine their baseline expenses. Even if a company produces nothing, it still needs to cover these fixed costs to stay operational. For instance, if the y-intercept of a cost graph is £500, this means the business has £500 in fixed costs regardless of how many units it produces or sells.

In a cost graph, the y-axis typically represents the total cost, while the x-axis represents the number of units produced or sold. The slope of the graph indicates variable costs, which change with the level of production. By analysing both the y-intercept and the slope, businesses can better understand their cost structure and make informed financial decisions.