hell this is a cost concept topic

1. Cost concept
A cost is the value of money that has been
used up to produce something.
Definition of cost :- The expenses faced by
the business in the process of supplying
goods and services to consumer.

2. Types of cost
 Total fixed cost ( TFC)
Total variable cost ( TVC)
 Total cost ( TC = TFC + TVC)
 Average variable cost (AVC)
 Average fixed cost (AFC)
 Average total cost (ATC = AFC + AVC)
 Marginal Cost (MC)

3. Fixed cost:- Fixed cost denotes the costs which
do not very with the level of production . Fc is
independent of output .
E.g. Depreciation, interest rate, Rent, Taxes.

5. 2. Total Fixed cost :- All costs associated with
the fixed input.
TFC = taxes + insurance + depreciation change +
building etc .

6. 3. Variable cost :- Variable costs is the rest of
total cost, the part that varies as you produce
more or less . It depends on output.
E.g: Increase of output with labour.
Total fixed cost(TVC):- All costs associated with
the variable input.
TC = TFC + TVC

7. 4. Average variable cost :- Total variable cost
per unit of output.
AVC = TFC/ Q
5. Average fixed cost :- Total fixed cost per unit
of output.
TFC = TFC/ Q
6. Average total cost :- Average total cost per
unit of output.
ATC = AFC + AVC
ATC = TC / Output

8. Marginal costs :- The additional cost incurred
from producing an additional unit of output.
MC = TC / Output
MC = TVC / Output

10. I ) Cost A1 :- according to cost in 16 types.
For Example:- 1) Value of hired labour (Permanent and causal)
2) Value of owned bullock labour
3) Value of hired bullock labour
4) Value of owned labour
5) Hired machinery charge
6) Value of fertilizer
7) Value of manure
8) value of seed
9) Value of insecticides & Fungicides
10) irrigation charge
11) Canal water charges
12) Land revenue
13) Depreciation on farm implements
14) Interest on the working capital
15) Imputed value of family labour
16) Imputed interest on owned fixed capital

11. ii) Cost A2 = Cost A1 + Rent paid for leased land
iii) Cost B= Cost A2 + Imputed interest on owned
of land + Imputed interest on owned fixed
capital
iv) Cost C = Cost B+ Imputed value of family
labour where cost C is the cost of cultivated

12. A)Fixed costs/ Overhead cost - FC: -
These are fixed. In agriculture, land in some
sense is a fixed capital. The other important
items of fixed costs are implements and tools,
machinery, farm buildings, work animals.

13. B) Variable costs/Prime cost – VC : - These costs
vary with the production. One can increase or
decrease their use. In agriculture, cost of seed,
manures and fertilizers, irrigation, Hired
human labour, are the variable costs.

14. C) Implicit and Explicit :-
• Accounting Cost vs. Economics Cost
Accounting cost (Explicit cost) :- Salary paid to
workers , Rent paid Cash outflow .
• Implicit cost :- Owner {Capital Invested + Self
time invested} No cash outflow
• Economic cost = Accounting cost + Implicit
cost Economics Profit = Revenue- Economics
cost . Accounting Profit vs. Economics Profit

15. D) Opportunity cost or social /
Alternative cost
• Outlay cost= expenditure of funds. recorded in books.
• Opportunity cost = cost of forgone opportunity. Not
recorded in books.
• Example- Cost of education
• The farm resource have normally a number of
alternative uses. For example a farm rice paddy on his
farm instead of maize, it means the farmer utilised the
other opportunity by giving up the first alternative .
Here the social cost of raising paddy will be the amount
of maize sacrificed in the process. Therefore in modern
economics the real cost is presented as opportunity
cost or alternative cost.

16. Cost function :- cost function is determined by
production function and price of input and
expresses the relationship between cost and
output it is divided into two part.
a. Short run cost function
b. Long run cost function

17. Classification of farmers based on
land holding in India
• Based on the size of the landholding, the
farmers in India are classified as:
• Marginal – less than 1 hectare
• Small – 1-2 hectare
• Semi-medium – 2-4 hectare
• Medium – 4-10 hectare
• Large – 10 hectare and above