Cost function
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The document discusses various concepts related to cost analysis and estimation including: 1. It defines different types of costs such as historical costs, replacement costs, opportunity costs, explicit and implicit costs, incremental costs, sunk costs, fixed costs, and variable costs. 2. It explains short-run and long-run costs and how cost curves like total cost, average cost, and marginal cost change in the short-run and long-run. 3. It discusses economies of scale and how long-run average costs are U-shaped, initially falling with scale due to product, plant and firm level economies, then rising due to diseconomies of scale.
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Cost function
This document discusses various concepts related to cost analysis and estimation. It covers the differences between accounting and economic costs, as well as historical versus current costs. The document also defines opportunity costs, incremental costs, sunk costs, and fixed versus variable costs. Additionally, it examines short-run and long-run costs, including cost curves and relationships between costs and production functions. Finally, the document discusses economies of scale, returns to scale, and economies of scope as they relate to long-run average costs.
Cost function
This document discusses various concepts related to cost analysis and estimation. It covers the differences between accounting and economic costs, as well as historical versus current costs. The document also discusses opportunity costs, incremental costs, sunk costs, and fixed versus variable costs. Additionally, it examines short-run and long-run costs through cost curves. Finally, the document analyzes economies of scale, cost elasticity, and economies of scope.
Long Run Cost Function
In the long-run a firm can amend its size and organization to violate demand conditions. In other words, in the long-run the firm can adjust its scale of operations or size of plant to produce any required output in the most efficient way. Thus, in the long run fixed factors can be altered. Management can be restructured to run a firm of a different size. Capital can also be used differently. In short, all factors are variable in the long run and therefore the scale of operations can be altered
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The document discusses the concept of long-run average costs (LRAC) curves. It explains that in the long-run, all costs are variable as firms can adjust all inputs. The LRAC curve shows the minimum average cost for different output levels when all inputs are adjustable. It relates the LRAC curve to a firm's set of short-run average cost curves, which correspond to different plant sizes. Economies of scale exist when average costs decrease with increasing output, while diseconomies of scale occur when average costs increase with larger output. Naturally monopolies have LRAC curves with economies of scale over the entire market demand range. The shape of the LRAC curve depends on production technology.
cost curves
The document discusses concepts related to long-run total cost curves. It begins by defining the long-run total cost curve and noting that it will always be zero when quantity is zero. An example production function and cost-minimizing inputs are provided. It then derives the total cost function and shows it is a straight line if wages and capital rental rates are given. The effects of changes in input prices on total cost and cost curves are examined. Long-run average and marginal costs are defined as the slope of rays from the origin and tangents to the total cost curve, respectively. Several examples and queries about total cost, average cost, and marginal cost are provided and answered. The concepts of economies of scale, minimum efficient scale
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The document discusses cost theory and the different types of costs firms face. It explains that in the short-run, total cost is the sum of fixed and variable costs. Average costs like average fixed cost, average variable cost, and average total cost are defined. In the long-run, all costs are variable. Economies and diseconomies of scale impact the long-run average cost curve shape. The envelope relationship shows that short-run average costs are always above the long-run average cost curve.
Economies of scale
This document provides a summary of key concepts related to costs of production in the short run and long run from Mankiw Chapter 13. It discusses:
1) Short run costs include fixed costs for inputs like factories, while long run all costs are variable as firms can build or sell factories.
2) Long run average total cost (LRATC) is the most efficient cost per unit using optimal input mix and factory size for a given quantity. LRATC looks like a stepped curve made up of individual short run average total cost curves for different factory sizes.
3) Economies of scale occur when average total cost falls as quantity increases due to specialization, while diseconomies of scale are due to
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This document discusses and compares short run and long run cost functions. In the short run, average total costs and average variable costs are U-shaped, and marginal cost intersects them at their lowest point from below. In the long run, firms can adjust all factors of production, and long run average cost forms an envelope of the short run cost functions. The key difference is that short run cost functions impact input quantity decisions in the short term, while long run cost functions influence expansion decisions.
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Cost function
This document discusses various concepts related to cost analysis and estimation. It covers the differences between accounting and economic costs, as well as historical versus current costs. The document also defines opportunity costs, incremental costs, sunk costs, and fixed versus variable costs. Additionally, it examines short-run and long-run costs, including cost curves and relationships between costs and production functions. Finally, the document discusses economies of scale, returns to scale, and economies of scope as they relate to long-run average costs.
Cost function
This document discusses various concepts related to cost analysis and estimation. It covers the differences between accounting and economic costs, as well as historical versus current costs. The document also discusses opportunity costs, incremental costs, sunk costs, and fixed versus variable costs. Additionally, it examines short-run and long-run costs through cost curves. Finally, the document analyzes economies of scale, cost elasticity, and economies of scope.
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In the long-run a firm can amend its size and organization to violate demand conditions. In other words, in the long-run the firm can adjust its scale of operations or size of plant to produce any required output in the most efficient way. Thus, in the long run fixed factors can be altered. Management can be restructured to run a firm of a different size. Capital can also be used differently. In short, all factors are variable in the long run and therefore the scale of operations can be altered
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The document discusses concepts related to long-run total cost curves. It begins by defining the long-run total cost curve and noting that it will always be zero when quantity is zero. An example production function and cost-minimizing inputs are provided. It then derives the total cost function and shows it is a straight line if wages and capital rental rates are given. The effects of changes in input prices on total cost and cost curves are examined. Long-run average and marginal costs are defined as the slope of rays from the origin and tangents to the total cost curve, respectively. Several examples and queries about total cost, average cost, and marginal cost are provided and answered. The concepts of economies of scale, minimum efficient scale
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The document discusses cost theory and the different types of costs firms face. It explains that in the short-run, total cost is the sum of fixed and variable costs. Average costs like average fixed cost, average variable cost, and average total cost are defined. In the long-run, all costs are variable. Economies and diseconomies of scale impact the long-run average cost curve shape. The envelope relationship shows that short-run average costs are always above the long-run average cost curve.
Economies of scale
This document provides a summary of key concepts related to costs of production in the short run and long run from Mankiw Chapter 13. It discusses:
1) Short run costs include fixed costs for inputs like factories, while long run all costs are variable as firms can build or sell factories.
2) Long run average total cost (LRATC) is the most efficient cost per unit using optimal input mix and factory size for a given quantity. LRATC looks like a stepped curve made up of individual short run average total cost curves for different factory sizes.
3) Economies of scale occur when average total cost falls as quantity increases due to specialization, while diseconomies of scale are due to
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This document discusses and compares short run and long run cost functions. In the short run, average total costs and average variable costs are U-shaped, and marginal cost intersects them at their lowest point from below. In the long run, firms can adjust all factors of production, and long run average cost forms an envelope of the short run cost functions. The key difference is that short run cost functions impact input quantity decisions in the short term, while long run cost functions influence expansion decisions.
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The document discusses different types of costs that a firm considers when determining production levels, including:
- Fixed costs that do not vary with output. Variable costs vary with output levels. Total costs are the sum of fixed and variable costs.
- Average costs include average fixed cost, average variable cost, and average total cost. Marginal cost is the change in total cost from producing one additional unit.
- Opportunity costs represent the value of the next best alternative forgone. Implicit costs do not involve direct payments but represent foregone opportunities.
- Cost functions determine how costs change with output and allow firms to allocate resources and set prices efficiently. Short-run and long-run cost functions are discussed.
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The document discusses long-run average cost (LAC) curves. It explains that in the long-run, all factors of production are variable and the LAC curve guides entrepreneurs on optimal plant size and output levels. The LAC curve is derived from short-run cost curves and is U-shaped, representing minimum unit costs for different output levels. Economies of scale may exist as costs fall with increasing output up to a point, after which diseconomies of scale can set in as costs begin rising again. The break-even point is where total revenue equals total costs and no economic profit is made.
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1. As firms increase their scale of production in the long-run by investing in fixed factors like larger factories, they can experience increasing, constant, or decreasing returns to scale.
2. Increasing returns lead to lower average costs (economies of scale) while decreasing returns lead to higher average costs (diseconomies of scale).
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02 COST CONCEPT AND ITS TYPES
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05 DETERMINANTS OF COSTS
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This document discusses various concepts related to cost analysis and estimation. It covers the differences between accounting and economic costs, as well as historical versus current costs. The document also discusses opportunity costs, incremental costs, sunk costs, and fixed versus variable costs. Finally, it examines short-run and long-run costs, including cost curves and relationships between costs and production functions.
Cost function
This document discusses various concepts related to cost analysis and estimation. It covers the differences between accounting and economic costs, as well as historical versus current costs. The document also defines opportunity costs, incremental costs, sunk costs, and fixed versus variable costs. Additionally, it examines short-run and long-run costs, including cost curves and relationships between costs and production functions. Finally, the document discusses economies of scale, returns to scale, and economies of scope as they relate to long-run average costs.
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The document discusses the cost-output relationship and how it determines the optimal level of production. It explains that costs can be classified as short-run or long-run costs depending on whether production capacity can be changed. Short-run costs are analyzed using cost curves, while long-run costs use cost and marginal cost curves. Economies and diseconomies of scale are also examined, where economies result from more efficient production at larger scales but diseconomies occur when production expands beyond optimal levels and management and coordination become more difficult.
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The document discusses different types of costs that a firm considers when determining production levels, including:
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- Opportunity costs represent the value of the next best alternative forgone. Implicit costs do not involve direct payments but represent foregone opportunities.
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The document discusses long-run average cost (LAC) curves. It explains that in the long-run, all factors of production are variable and the LAC curve guides entrepreneurs on optimal plant size and output levels. The LAC curve is derived from short-run cost curves and is U-shaped, representing minimum unit costs for different output levels. Economies of scale may exist as costs fall with increasing output up to a point, after which diseconomies of scale can set in as costs begin rising again. The break-even point is where total revenue equals total costs and no economic profit is made.
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The document discusses key concepts in cost theory and estimation including short-run and long-run cost curves, cost-volume-profit analysis, new economies of scale, and empirical estimation of cost functions. It examines cost concepts such as total, average, and marginal costs. It also explores returns to scale, learning curves, supply chain management, and other factors that influence a firm's costs.
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This document discusses different types of costs involved in production, including:
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Detailed Presentation on cost analysis including:
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02 COST CONCEPT AND ITS TYPES
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By: Archit Aditya
Follow
Instagram:https://www.instagram.com/architavi01
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Youtube:https://www.youtube.com/starorganization
Blog:https://astarfuturistic.blogspot.com
Pinterest:https://pinterest.com/architaditya
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- Cost curves like AVC, ATC, and MC are U-shaped based on the law of diminishing returns in production. Minimum efficient scale is where long-run average costs are minimized.
Cost analysis
This document discusses cost analysis and various cost concepts. It begins by defining cost analysis and its importance in business decision making. It then outlines several types of costs including: opportunity cost, economic cost, accounting cost, private and social costs, incremental and sunk costs, direct and indirect costs, average, marginal and total costs. It also discusses cost-output relationships in the short-run and long-run, factors determining costs, and break-even analysis. The key purpose is to provide an overview of different cost concepts and cost-output relationships that are important for business analysis and decision making.
Cost concepts
This document discusses cost concepts including the theory of costs, types of costs, and cost functions. It explains that a firm's total costs are made up of fixed costs and variable costs. Fixed costs do not change with output while variable costs do change with output. It also discusses the relationships between total cost, average cost, and marginal cost. Specifically, it explains that as output increases, average and marginal costs first decrease then increase, with marginal cost rising more quickly than average cost. The document also differentiates between short-run and long-run cost functions and how a firm's costs change in each time period.
Cost ( MANAGERIAL ECONOMICS)
The document discusses different types of costs that firms consider, including fixed costs, variable costs, average costs, marginal costs, and opportunity costs. It explains that opportunity costs should be included in economic costs, while sunk costs should be ignored for future decisions. Costs are categorized as fixed or variable. Total cost is the sum of fixed and variable costs. The relationship between average, marginal, and total costs is explored. Economies and diseconomies of scale as well as economies of scope are defined. The concepts of isocosts and isoquants are introduced to explain how firms can minimize costs of production for a given output level.
Chapter 8: Cost Analysis
This document discusses cost analysis and contains the following key points:
1. Cost analysis is important for managers to find lower cost production methods and compete against firms with lower costs. It examines concepts like fixed, variable, average, and marginal costs.
2. Short-run and long-run cost functions are presented, showing relationships between costs and output. Economies of scale can cause long-run average costs to decline with increased output up to a point.
3. The Cobb-Douglas production function is described and used to derive long-run cost functions based on factor inputs and returns to scale. Constant, increasing, and decreasing returns to scale impact the shape of the long-run average cost curve
Key Diagrams for A2 Business Microeconomics
1. The document provides advice on drawing effective diagrams for exam questions, including making diagrams at least half an A4 page, labeling axes clearly, and drawing diagrams at the appropriate technical level required.
2. It then lists 20 common diagrams that may be included in revision materials or exams, covering topics like diminishing returns, costs curves, revenue curves, perfect competition, monopoly, and oligopoly models.
3. The key messages are to practice common exam diagrams to improve accuracy, and to draw diagrams that match the technical specification required rather than oversimplifying the analysis.
Cost Curves
Cost Curves, Introduction, Types of Costs (Accounting costs, real cost, Implicit Cost, Opportunity cost, Explicit cost, Social cost, Imputed and Sunk Cost), Types of cost curves (Short run cost function, Relationship between Total Cost, Fixed Cost and Variable Cost, Costs in Long run, Conclusion.
Production and cost
- A business firm employs factors of production like resources to produce goods and services that are sold to consumers, other firms, or the government.
- Firms arise when individuals can obtain benefits from working as a team, with managers directing employees and monitoring workers to reduce shirking.
- Exchanges take place inside the firm between individuals forming teams and workers choosing monitors, and outside the firm as the firm sells its products.
Production cost
Production costs refer to the total expenses incurred from manufacturing a product or providing a service. They include direct costs like materials and labor as well as overhead costs.
There are three types of production costs: fixed costs which do not vary with output like rent, variable costs which vary with output like raw materials, and total costs which is the sum of fixed and variable costs.
Understanding short-run and long-run average cost curves can provide insight into a firm's costs. The long-run average cost curve shows minimum possible average costs at all output levels if all inputs can be varied. Each point on the curve represents an optimal combination of inputs. Short-run average cost curves represent when capital is fixed, so
Cost
This document discusses cost concepts from an accounting and analytical perspective. It defines different types of costs such as fixed, variable, total, average, and marginal cost. It explains the relationship between these costs and how they change with varying levels of output in the short-run and long-run. The short-run cost curves are U-shaped while the long-run average cost curve is U-shaped, reflecting economies and diseconomies of scale. Other concepts covered include opportunity cost, sunk cost, learning curves, and economies of scope.
Cost function
- The document discusses different types of costs including explicit, economic, and relevant costs. It also discusses short-run and long-run costs.
- Graphs show cost curves including average total cost, average variable cost, marginal cost, and how they relate to quantity produced.
- The shapes of long-run cost curves are explained, including how returns to scale impact the average cost curve. Economies and diseconomies of scale as well as learning curves are also summarized.
Long run cost - lecture4,5 (1)
This document discusses economies and diseconomies of scale. It begins by defining economies of scale as the advantages of large-scale production that result in lower average costs per unit. There are internal economies that arise from growth within a firm, such as specialization, and external economies from industry growth, like infrastructure development. As firms increase production, average costs can fall due to spreading fixed costs over more units. However, very large firms may experience diseconomies of scale like difficulties with communication and coordination that increase average costs. The optimal scale of production is where further growth yields no significant cost savings.
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Cost function
- 1. ` Cost Analysis and Estimation
- 7. Short Run Cost Graphs AFC Q Q 1. 2. AVC 3. Q AFC AVC ATC MC MC intersects lowest point of AVC and lowest point of ATC. When MC < AVC, AVC declines When MC > AVC, AVC rises
- 15. Long Run Cost Function (LAC) Envelope of SAC curves
Editor's Notes
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