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13609078 2


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13609078 2

  1. 1. SHUBHAM GOEL 13609046 R1
  2. 2. In the decade of 1990s , the most commonly used Way to contain or to cut costs was to reduce the number of people on a company‟s payroll. This is not a new concept . However, What is relatively new is where such consolidation or close tie –ins takes place between the different “Centers Of Excellence” and the rest of the company. This is largely because of the proliferation and falling cost of broadband communications . Now a company can have its support function relating to headquarters as well as to all its other locations in the world where it operates.
  3. 3. An additional way in which companies have tried to cut costs to remain competitive is to merge , Consolidate , and then reduce headcount . It is no surprise that mega mergers making the news in recent years primarily involve companies that have been experiencing considerable changes in the economics of their business .
  4. 4. In a typical business organization , cost is generally considered the domain of the accounting department. Its presentation to the outside world is based on generally accepted accounting principles. Any cost not affected by a decision is considered irrelevant . Both economists & cost accountant use the concept of relevant cost when analyzing business problems and recommending solutions .
  5. 5. Historical Cost Replacement Cost Opportunity Cost Out of pocket Cost Sunk Cost Incremental Cost
  6. 6. Most firms experience rising marginal productivity at early stages of production as they hire additional workers because additional workers give them the opportunity to work as a team and allows individual workers to specialize and become very good at particular parts of the production process. As a result, the Total Product curve will rise very fast at these early stages of production. Generally, however, when these firms try to grow too big for their fixed inputs hire too many workers, the workers start to get crowded and marginal productivity starts to drop off. This results in much slower growth in output. MC= TVC/Q
  7. 7.  The firm employs two inputs , labor & capital.  The firm operates in a short run production period . Labor is its variable input, & capital is its fixed input.  The firm uses the inputs to make a single product .  The firm operates at every level of output in the most efficient way.  The firm „s underlying short-run production function is affected by the law of diminishing
  8. 8. In the long run , all inputs to a firms production function may be changed . Because there are no fixed inputs , there are no fixed costs.Consequently, all cost of production are variable in the long run. in most work situation managers of firms make decisions about production & cost that economic theory would consider short run in nature . As output increases, observe that total cost increases , but not at constant rate . As with the short-run function , the rate of change of the long- run total cost function is called the marginal cost .
  9. 9. If a firms long run average cost declines as output increases , the firm is said to be experiencing economies of scale . If long run average cost increases as output increases , economists consider this to be a sign of diseconomies of scale . There is no special term to describe the situation in which a firm‟s long run average cost remains constant as output increases or decreases .
  10. 10. The reduction of a firm‟s unit cost by producing two or more goods or services jointly rather than separately is called economies of scope . The concept of economies of scope is closely related to economies of scale . Engaging in more than one line of business may require a firm to have a certain minimum scale of operation . A good example of economies of scope is the case of pepsi-Co beverage & snack business relative to its distribution channels .
  11. 11. The learning curve is a line showing the relationship between labor cost and additional units of output . Its downward slope indicates that this additional cost per unit declines as the level of output increases because workers improves with practice . The reduction in cost from this particular source of improvement is often referred to as learning curve effect .