The document discusses various cost concepts in business economics including cost functions, opportunity costs, types of costs, fixed and variable costs, total costs, average costs, marginal costs, break-even analysis, contribution margin, and profit-volume ratio. It provides definitions and formulas for these concepts and illustrates their calculation and application in decision making.
This theory relies on the market behaviour of the consumer to know about his preferences with regard to the various combinations for the two reactions and responses of the consumer.
This theory relies on the market behaviour of the consumer to know about his preferences with regard to the various combinations for the two reactions and responses of the consumer.
In this presentation, we will discuss in details about cost of production and various concepts of cost like fixed cost, variable cost, average cost, marginal costs, etc.
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A MODEL STUDY ON COMPARATIVE COST ANALYSIS OF EQUIPMENT MANAGEMENT IN CONSTRU...IAEME Publication
Construction Equipment is the important factor to run the project in a successful manner. it is
important for both private constructions and also for Trust based organizational Construction
projects’ success. A large number of quantities of equipment are required in construction even in
small construction companies also there is a need to invest high initial cost in equipment. Nearly
40% of construction cost is related to equipment. This paper elevates the elements to be considered
while purchasing, leasing or renting the equipment, and guide in optimizing the profitability.
Methods of life cycle cost estimating and decision methods were researched and compared. Data
was acquired from equipment rental companies, private construction companies, and Trust base
organizational projects
Cost and production analysis - Cost concepts – Cost and output relationship - cost control – Short run and Long run - cost functions - production functions – Break-even analysis - Economies scale of production.
Fundamentals of EconomicsA. Profit MaximizationProfit Maximi.docxbudbarber38650
Fundamentals of Economics
A. Profit Maximization
Profit Maximization is the determination of the best output in relation to price levels so that returns for the firm are maximized. A company usually has profit goals that must be reach, so various strategies such as reducing production costs, adjusting sale prices, and maximizing output levels are used.
A company should always use profit maximization methods, but these methods may negatively affect consumers if the method results in poor-quality product or higher prices.
Two main methods are use in profit maximization: a) Total Cost-Total Revenue Method and b) Marginal Cost-Marginal Revenue Method.
a) Total revenue to total cost
Total revenue less total cost is the profit, expressed as Π = TR – TC. Total revenue is the total amount of money the company receives from selling its products, or from other aspects of its business operations. Total cost is the sum of all aspects of the company’s production and operations, including non-monetary costs. Non-monetary costs include items that were not paid in cash but were incurred, like the time spent by the owner managing the business, or the equivalent cost of using the land or machineries of the owners, as if they are being rented.
If non-monetary costs will not be included in the computation of revenue, an accounting profit will result, but it will not be the actual economic profit. To obtain the economic profit, all explicit and implicit costs should be accounted for, including opportunity costs.
To find out how much profit the firm actually make, costs have to be determined. All the information can be derived from ATC. As ATC = TC/Q, so TC = ATC x Q. Profit maximization levels can be found by the simple multiplication and subtraction approach. Profit maximization = Total Revenue (TR) – Costs (C). (NEWLY ADDED)
Criterion Score:2.00
Comments on this criterion (optional): The submission explains Total Revenue and Total Cost.
However, the point at which profit maximization is reached and how it is recognized using total
revenue and total cost as criteria could not be located in the submission. Please revise and
resubmit.
b) Marginal revenue to marginal cost
Marginal revenue is the added revenue when one more unit of output is sold. The profit maximizing level of output for monopolists is arrived at after equating its marginal revenue and its marginal cost. This is also the same condition for profit maximization that a perfectly competitive firm uses in determining its output equilibrium level. Marginal revenue equals marginal cost is the condition firms in different market structures use in determining their profit maximizing level of output.
Marginal cost is the cost of the additional unit, or the cost of produce one more unit. It is hard to determine the exact cost of the last unit, but the average cost of a group of units can easily be calculated. The change in costs from a previous level is divided by the change in quantity fr.
The firm is an economic institution that transforms factors of production into consumer goods – it:
Organizes factors of production.
Produces goods and services.
Sells produced goods and services.
20. Break-Even Analysis Costs/Revenue Output/Sales FC VC TC TR Q1 The Break-even point occurs where total revenue equals total costs – the firm, in this example would have to sell Q1 to generate sufficient revenue to cover its costs.
21. Break-Even Analysis Costs/Revenue Output/Sales FC VC TC TR (p = Rs.20) Q1 If the firm chose to set price higher than Rs.20 (say Rs.30) the TR curve would be steeper – they would not have to sell as many units to break even TR (p = Rs30) Q2
22. Break-Even Analysis Costs/Revenue Output/Sales FC VC TC TR (p = Rs.20) Q1 If the firm chose to set prices lower (say Rs.10) it would need to sell more units before covering its costs TR (p = Rs.10) Q3
29. Break-Even Analysis Costs/Revenue Output/Sales FC VC TC TR (p = Rs.20) Q1 Q2 Margin of Safety Margin of safety shows how far sales can fall before losses made. If Q1 = 1000 and Q2 = 1800, sales could fall by 800 units before a loss would be made TR (p = Rs.30) Q3 A higher price would lower the break even point and the margin of safety would widen