MICRO ECONOMICS

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MICRO ECONOMICS

  1. 1. PROJECT SUBBMISION ON “MICRO ECONOMICS” BY CHANCHAL SAHARMA (BBA 1ST YEAR)106/10 Civil lines, Ajmer 305001Website: www.Dezyneecole.com
  2. 2. CONTANTS PagesWhat is cost…………………….…… 1Relation between TC, VC and FC………5Relation between AC and MC…………7What is revenue……………………… 9Conclusion……….……………..…….10
  3. 3. COST1. Accounting and economic cost: - money cost is the total money expenses in occurred by a firm in producing a commodity. They include wages and salaries by lab our; light fuel advertisement and transportation insurance charges and all types of taxes.  Explicit costs are the payment to outside suppliers of input.  Implicit costs are the inputted values of the entrepreneurs own resources and services. Implicit costs are the values of owned inputs used by firm in its own production process.2. Production costs: - In the production process many fixed and variable factors are used. They are employed at various prices
  4. 4. I. Total variable costs: - total variable costs are those expenses of production which changes with the changes in the firm‟s output. Larger inputs require large input of labor, row materials, power, fuel etc. which increase the expenses of production, when output is reduced. Variable costs also diminish. They cease when production stops altogether. Marshall called these variable costs as prime costs of production. II. Total fixed costs: - Called supplementary costs by Marshall are those expenses of production which do not change with the change in output. They are rent and interest payment depreciation charges wages and salaries of the permanent staff etc. fixed costs have to be incurred by the firm, even if it stops production temporarily.
  5. 5. 3. Real costs: - Money costs are the expenses of production from the point of view of the producer. But they tell us nothing about what lies behind these costs. Marshall thought that the effort and sacrifices undergone by the various member of the society in producing a commodity are the real costs of production.4. Opportunity cost: - The opportunity of anything is the next best alternative that could be produce instead by the same factors or by an equivalent group of factors, costing the same amount of money. I. Explicit cost:- are those expenses which are incurred by the firm in buying the goods and services directly
  6. 6. II. Implicit cost:- are the imputed value of the entrepreneur‟s own resources could and services 5. Private and social costs: - private costs are the costs incurred by a firm in producing a commodity or service. These include both explicit and implicit costs. However the production activities of a may lead to economic benefit or harms for others. For example production of commodities like steal, rubber, and chemical, pollutes the environment which leads to social cost.6. The cost function: - The costs function express a functional relationship between total cost and factors. C = f (Q, T, P, F) C = cost; f = function Q = output; T = technology P = price; F = factors
  7. 7. THE RELATION BETWEEN TOTAL COST, VARIABLE COST AND FIXED COST T TFC TVC TC AFC AVC ATC MC (Q) 2 3 4 5 6 7 8 1 (2+3) (2/1) (3+1) (3+1) (from 4) 0 300 0 300 300 0 300 - 1 300 300 600 300 300 600 300 2 300 400 700 150 200 350 100 3 300 450 750 100 150 250 50 4 300 500 800 75 125 200 50 5 300 600 900 60 120 180 100 6 300 720 1020 50 120 170 120 7 300 890 1190 42.9 127.1 170 170 8 300 1100 1400 37.5 137.5 175 210 9 300 1350 1650 33.3 150 183.3 470 10 300 2000 2300 30 200 230 650The relation between total cost, variable cost and fixed cost is shown in table where column (1) indicatesdifferent levels of output from 0 to 10 units. Columns
  8. 8. (2) indicate the total fixed cost (TFC) remain at rs. 300at all levels of output. Column (3) shows total variable cost (TVC) which is zero when output is nothing andthey continue to increase with the rise in output. In thebeginning they rise quickly then they slows down as the firm enjoy economies of larger scale production with further increase in output and later on due to diseconomies of production the variable cost starts rising rapidly. Column (4) relates to total costs which are the sum of column 2 and column 3 i.e. TC=TFC+TVC. Total costs vary with total variable costs when the firm starts production.The cost relations are shown infigure where the distance betweenthe horizontal line FC and x axismeasures the total fixed cost andthe distance above the FC curvei.e. between TC and TFC. Thus atOQ, level of outputTC=TFC+TVC is Q, L=QP+PL.similarly at OQ2 level of outputQ2S+SM.
  9. 9. Relation between AC and MC There is a direct relationship between AC and MC curve asshown in figure Output Both the AC curve and MC curve are U- shaped. 1. When AC falls, MC is less than AC. This is because the fall in MC is related to one unit ofoutput while in the case of AC the same decline isspread over all units of output. That is why fall in AC is less and in MC is more. 2. When AC is minimum, MC equals AC. The MC curve cuts the AC curve from below at its minimum point B.
  10. 10. 3. When AC is rises, MC is greater than AC. MC is above AC when AC is rising but the rise in MC is greater than AC. This is because the rise in MCis result of the increase in one unit of output while in case of AC the same increase is spread over all units of output. 4. Nothing can be said about the direction of MC, when AC rises or falls. When AC is falling, it is not essential that MC must fall. 5. Relation between AC and MC is the same in the short-run and long-run. But their shapes differ: both are U-shaped in short-run and flat in the long-run.
  11. 11. REVENUEThe term „revenue‟ refers to the receipts obtained by a firm from the sale of certain quantities of acommodity at various prices. The revenue concept relates to total revenue, average revenue and marginal revenue.TOTAL REVENUE is the total sale proceeds of a firm by selling a commodity at a given price. AVERAGE REVENUE is the average receiptsfrom the sale of certain units of the commodity. It is found by dividing the total revenue by the number of units sold.MARGINAL REVENUE is the addition to totalrevenue as a result of small increase in the sale of a firm.
  12. 12. Conclusion In this project we study about cost and revenue. This project tells us the meaning ofcost and revenue types of cost and revenue and relation between cost and revenue.

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