The document discusses cost and revenue functions in the short run and long run. It defines key concepts like total, average, and marginal costs. Total costs are divided into total fixed and total 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 an additional unit. Similarly, the document defines total, average, and marginal revenue. It explains how costs and revenues behave in the short run versus the long run.
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.
To know more about Welingkar School’s Distance Learning Program and courses offered, visit:
http://www.welingkaronline.org/distance-learning/online-mba.html
The document provides an overview of cost concepts that will be covered in Chapter 8. It defines different types of costs including accounting costs, opportunity costs, fixed costs, and variable costs. It explains the concepts of average cost, marginal cost, and their relationships. It discusses costs in the short run versus the long run and how all costs are variable in the long run. It also covers costs for multi-product firms and the allocation of common costs for joint products. Finally, it introduces the linkages between costs, revenue, and output through concepts like total revenue, average revenue, and marginal revenue.
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.
Short-run cost theory can be summarized in 3 sentences:
Fixed costs are incurred regardless of output while variable costs change with output. Total costs are the sum of fixed and variable costs. Average total costs initially fall as average fixed costs decline and marginal costs are low, but eventually rise as marginal costs increase due to diminishing returns.
The price of the firm's output is not a determinant of the firm's cost functions. The cost functions are determined by factors of production like labor, capital, technology etc. and not by the price that the firm can charge for its output.
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.
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.
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.
To know more about Welingkar School’s Distance Learning Program and courses offered, visit:
http://www.welingkaronline.org/distance-learning/online-mba.html
The document provides an overview of cost concepts that will be covered in Chapter 8. It defines different types of costs including accounting costs, opportunity costs, fixed costs, and variable costs. It explains the concepts of average cost, marginal cost, and their relationships. It discusses costs in the short run versus the long run and how all costs are variable in the long run. It also covers costs for multi-product firms and the allocation of common costs for joint products. Finally, it introduces the linkages between costs, revenue, and output through concepts like total revenue, average revenue, and marginal revenue.
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.
Short-run cost theory can be summarized in 3 sentences:
Fixed costs are incurred regardless of output while variable costs change with output. Total costs are the sum of fixed and variable costs. Average total costs initially fall as average fixed costs decline and marginal costs are low, but eventually rise as marginal costs increase due to diminishing returns.
The price of the firm's output is not a determinant of the firm's cost functions. The cost functions are determined by factors of production like labor, capital, technology etc. and not by the price that the firm can charge for its output.
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.
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.
The document discusses various concepts related to cost. It defines cost as a sacrifice or foregone opportunity measured in monetary terms. It then discusses different types of costs such as fixed costs, variable costs, sunk costs, explicit costs, implicit costs, and others. It also discusses cost determination factors and different cost curves and functions in the short run and long run, including total cost, average cost, and marginal cost curves. Finally, it discusses costs for multi-product firms and joint products.
The main objectives of this presentation are to study about Production theory, to study about Production efficiency, to study about cost theory, To relate the cost with production, to study to achieve maximum profit for the organization and to study to take decision which will result maximum benefit for the organization. This report shows what a can a good manager do maximize production efficiency as well as economic efficiency. Not only this one of the most important matter that should be kept in consideration is that, the duration for continuing the production for a product in a competitive market situation. The main objective of an organization is to maximize it profit. Some simultaneous process are related to run an organization and to achieve its goal such as production, creating the demand of the product, selling the product with a profitable cost. That is why a manager should know about the total cost for the production and for the operation. Total cost per product can be reduced by increasing production efficiency. An organization should take this decision how will the increase their production efficiency and at the same time they have to decide how will they use their resources to get maximum output.
The document discusses the theory of cost, including various cost concepts and cost curves. It covers accounting concepts such as opportunity cost and actual cost as well as analytical concepts such as fixed and variable costs. The document also examines cost functions including linear, quadratic and cubic forms. It analyzes short-run and long-run cost curves, discussing total cost, average cost and marginal cost. Finally, the document addresses economies and diseconomies of scale and assigns further reading on the economics of scale.
Cost Output Relationship; Estimation of Cost and OutputDheeraj Rajput
Dheeraj Rawal presented on cost-output relationships and methods for estimating cost functions. There are two main types of cost estimation: short-run and long-run. Short-run estimation looks at costs when some inputs are fixed, while long-run allows all inputs to vary. Common short-run cost curves include total, average, and marginal cost curves. Long-run estimation derives a minimum cost curve from multiple short-run curves. Methods for estimating cost functions include accounting analysis, high-low analysis, scatterplots, and regression analysis. Challenges include accounting for time periods and cost adjustments over time.
This document discusses key concepts related to business costs including:
1. It defines economic costs, accounting costs, and sunk costs.
2. It explains the differences between short-run and long-run costs, and how total, average, and marginal costs are calculated in each time period.
3. It provides examples of cost schedules and diagrams cost curves, discussing their characteristics and relationships.
- In the short run, firms have fixed costs that do not depend on output level. They also have variable costs that vary with output. Total costs are the sum of fixed and variable costs.
- Marginal cost is the change in total cost from producing one additional unit. It reflects changes in variable costs. Marginal cost typically rises as output increases in the short run due to diminishing returns.
- A profit-maximizing firm will produce the quantity where marginal revenue equals marginal cost. In perfect competition, this occurs where price equals marginal cost.
Cost refers to the total expenditure incurred by a producer to produce a given level of output. It includes explicit costs, which are cash payments to factors of production, and implicit costs, which are imputed costs of self-owned resources. Total cost is the sum of fixed costs, which do not vary with output, and variable costs, which do vary with output. Marginal cost is the change in total cost from producing one additional unit of output. It is U-shaped, initially decreasing and then increasing, reflecting the law of variable proportions. Average cost is total cost divided by output and is the sum of average fixed cost and average variable cost.
The document discusses the relationship between marginal cost, average total cost, and average variable cost. It states that marginal cost curves always intersect average cost curves at the minimum point. When marginal cost exceeds average cost, average cost is rising. When marginal cost is less than average cost, average cost is falling. Marginal cost also indicates whether average variable cost is rising or falling in the same way.
The document discusses cost functions and curves in the long run. It defines long run costs as those that can change as the firm varies all inputs over time. The long run average cost curve depicts the relationship between output and long run average cost of production as the firm takes advantage of economies of scale by increasing production. Economies of scale refer to decreasing long run average costs from increasing production, while diseconomies of scale refer to increasing costs from producing at too large a scale.
The document discusses various cost concepts including:
- Opportunity cost and actual cost
- Business costs and full costs
- Explicit and implicit costs
- Short-run and long-run costs including fixed, variable, average, and marginal costs
- Traditional theories of costs including short-run cost curves and production rules
- Modern theories including the long-run average cost curve and concepts of economies and diseconomies of scale
This document discusses the concepts of fixed costs, variable costs, total costs, average costs and marginal costs for a firm in the short run. It defines each type of cost and provides tables and graphs to illustrate how costs change with different levels of output. The key points are:
- Fixed costs remain constant in the short run, while variable costs change with output. Total costs are the sum of fixed and variable costs.
- As output increases, average fixed costs fall while average variable costs first fall and then rise, resulting in the U-shaped average total cost curve.
- Marginal costs first fall and then rise, and equal average costs at the minimum point of the average cost curve.
This document discusses cost concepts and types of costs. It defines explicit costs as actual money expenditures paid to outsiders, and implicit costs as the estimated value of owner-supplied inputs including normal profit. Cost is a function of output, and types of costs include total fixed costs, total variable costs, total costs, average fixed costs, average variable costs, average costs, and marginal costs. Long-run costs are all variable as all factors are variable. Economies of scale provide cost advantages from expansion, including pecuniary and real economies, while internal economies come from changes within the firm and external economies from changes outside the firm like government policies.
This document discusses different types of costs in economics including total, fixed, variable, average, and marginal costs. It defines each type of cost using mathematical formulas. Total cost is the sum of total fixed costs and total variable costs. As production volume increases, average fixed cost decreases in a rectangular hyperbola shape. Marginal cost is the change in total cost from producing one additional unit and the marginal cost curve is U-shaped, initially high and then decreasing to a minimum point before rising again. The document provides a numerical example to illustrate the different cost concepts.
This document discusses short-run and long-run cost curves. It defines total, fixed, variable, average, and marginal costs for short-run cost functions. It then explains that the long-run average cost curve shows the minimum average cost for different output levels using different plant sizes. Finally, it discusses the relationship between long-run and short-run average cost curves, and how internal and external economies and diseconomies of scale can impact costs.
This document defines key concepts related to cost, including:
- Explicit costs refer to actual money spent on inputs, while implicit costs refer to the estimated value of owner-supplied inputs.
- Cost function studies the relationship between input costs and output levels.
- Short-run costs include total, fixed, and variable costs. Total cost equals fixed plus variable cost. Variable costs change with output while fixed costs do not.
- Marginal cost refers to the change in total cost from producing one additional unit of output.
This document discusses different types of costs involved in production. It defines fixed costs as expenses that cannot be changed in the short run, like rent and insurance, and variable costs as expenses that vary with output, such as raw materials and wages. Total cost is the sum of total fixed and total variable costs. As output increases, average fixed cost falls while average variable cost initially falls then rises, resulting in a U-shaped average total cost curve. Marginal cost is the change in total cost from producing an additional unit of output. The point where marginal cost equals average cost minimizes average total cost. Controlling costs is essential for business success.
The document discusses costs and output decisions for firms in the long run and short run. It provides an example of a car wash earning positive profits in the short run by setting output where marginal revenue equals marginal cost. In the long run, firms will enter industries with positive profits and exit industries with losses until prices equal minimum long-run average costs and profits are driven to zero.
The document discusses different types of costs in production including:
1. Cost of production refers to the total expenses incurred to produce a commodity, including costs of inputs, labor, technology, and efficiency.
2. Money costs include expenses like materials, wages, machinery, depreciation, interest, and profit. Real costs refer to the efforts and sacrifices of producers.
3. Opportunity cost is the next best alternative forgone in producing a good. For a farmer, it is the output of potatoes not produced by using resources for wheat.
The document discusses various cost concepts in economics including:
- Opportunity cost is the next best alternative use of a resource.
- Accounting costs include explicit payments, while economic costs also include implicit opportunity costs.
- Total, average, and marginal costs are defined for both the short-run and long-run. In the short-run some costs are fixed while in the long-run all costs are variable.
- 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.
The document discusses various concepts related to cost. It defines cost as a sacrifice or foregone opportunity measured in monetary terms. It then discusses different types of costs such as fixed costs, variable costs, sunk costs, explicit costs, implicit costs, and others. It also discusses cost determination factors and different cost curves and functions in the short run and long run, including total cost, average cost, and marginal cost curves. Finally, it discusses costs for multi-product firms and joint products.
The main objectives of this presentation are to study about Production theory, to study about Production efficiency, to study about cost theory, To relate the cost with production, to study to achieve maximum profit for the organization and to study to take decision which will result maximum benefit for the organization. This report shows what a can a good manager do maximize production efficiency as well as economic efficiency. Not only this one of the most important matter that should be kept in consideration is that, the duration for continuing the production for a product in a competitive market situation. The main objective of an organization is to maximize it profit. Some simultaneous process are related to run an organization and to achieve its goal such as production, creating the demand of the product, selling the product with a profitable cost. That is why a manager should know about the total cost for the production and for the operation. Total cost per product can be reduced by increasing production efficiency. An organization should take this decision how will the increase their production efficiency and at the same time they have to decide how will they use their resources to get maximum output.
The document discusses the theory of cost, including various cost concepts and cost curves. It covers accounting concepts such as opportunity cost and actual cost as well as analytical concepts such as fixed and variable costs. The document also examines cost functions including linear, quadratic and cubic forms. It analyzes short-run and long-run cost curves, discussing total cost, average cost and marginal cost. Finally, the document addresses economies and diseconomies of scale and assigns further reading on the economics of scale.
Cost Output Relationship; Estimation of Cost and OutputDheeraj Rajput
Dheeraj Rawal presented on cost-output relationships and methods for estimating cost functions. There are two main types of cost estimation: short-run and long-run. Short-run estimation looks at costs when some inputs are fixed, while long-run allows all inputs to vary. Common short-run cost curves include total, average, and marginal cost curves. Long-run estimation derives a minimum cost curve from multiple short-run curves. Methods for estimating cost functions include accounting analysis, high-low analysis, scatterplots, and regression analysis. Challenges include accounting for time periods and cost adjustments over time.
This document discusses key concepts related to business costs including:
1. It defines economic costs, accounting costs, and sunk costs.
2. It explains the differences between short-run and long-run costs, and how total, average, and marginal costs are calculated in each time period.
3. It provides examples of cost schedules and diagrams cost curves, discussing their characteristics and relationships.
- In the short run, firms have fixed costs that do not depend on output level. They also have variable costs that vary with output. Total costs are the sum of fixed and variable costs.
- Marginal cost is the change in total cost from producing one additional unit. It reflects changes in variable costs. Marginal cost typically rises as output increases in the short run due to diminishing returns.
- A profit-maximizing firm will produce the quantity where marginal revenue equals marginal cost. In perfect competition, this occurs where price equals marginal cost.
Cost refers to the total expenditure incurred by a producer to produce a given level of output. It includes explicit costs, which are cash payments to factors of production, and implicit costs, which are imputed costs of self-owned resources. Total cost is the sum of fixed costs, which do not vary with output, and variable costs, which do vary with output. Marginal cost is the change in total cost from producing one additional unit of output. It is U-shaped, initially decreasing and then increasing, reflecting the law of variable proportions. Average cost is total cost divided by output and is the sum of average fixed cost and average variable cost.
The document discusses the relationship between marginal cost, average total cost, and average variable cost. It states that marginal cost curves always intersect average cost curves at the minimum point. When marginal cost exceeds average cost, average cost is rising. When marginal cost is less than average cost, average cost is falling. Marginal cost also indicates whether average variable cost is rising or falling in the same way.
The document discusses cost functions and curves in the long run. It defines long run costs as those that can change as the firm varies all inputs over time. The long run average cost curve depicts the relationship between output and long run average cost of production as the firm takes advantage of economies of scale by increasing production. Economies of scale refer to decreasing long run average costs from increasing production, while diseconomies of scale refer to increasing costs from producing at too large a scale.
The document discusses various cost concepts including:
- Opportunity cost and actual cost
- Business costs and full costs
- Explicit and implicit costs
- Short-run and long-run costs including fixed, variable, average, and marginal costs
- Traditional theories of costs including short-run cost curves and production rules
- Modern theories including the long-run average cost curve and concepts of economies and diseconomies of scale
This document discusses the concepts of fixed costs, variable costs, total costs, average costs and marginal costs for a firm in the short run. It defines each type of cost and provides tables and graphs to illustrate how costs change with different levels of output. The key points are:
- Fixed costs remain constant in the short run, while variable costs change with output. Total costs are the sum of fixed and variable costs.
- As output increases, average fixed costs fall while average variable costs first fall and then rise, resulting in the U-shaped average total cost curve.
- Marginal costs first fall and then rise, and equal average costs at the minimum point of the average cost curve.
This document discusses cost concepts and types of costs. It defines explicit costs as actual money expenditures paid to outsiders, and implicit costs as the estimated value of owner-supplied inputs including normal profit. Cost is a function of output, and types of costs include total fixed costs, total variable costs, total costs, average fixed costs, average variable costs, average costs, and marginal costs. Long-run costs are all variable as all factors are variable. Economies of scale provide cost advantages from expansion, including pecuniary and real economies, while internal economies come from changes within the firm and external economies from changes outside the firm like government policies.
This document discusses different types of costs in economics including total, fixed, variable, average, and marginal costs. It defines each type of cost using mathematical formulas. Total cost is the sum of total fixed costs and total variable costs. As production volume increases, average fixed cost decreases in a rectangular hyperbola shape. Marginal cost is the change in total cost from producing one additional unit and the marginal cost curve is U-shaped, initially high and then decreasing to a minimum point before rising again. The document provides a numerical example to illustrate the different cost concepts.
This document discusses short-run and long-run cost curves. It defines total, fixed, variable, average, and marginal costs for short-run cost functions. It then explains that the long-run average cost curve shows the minimum average cost for different output levels using different plant sizes. Finally, it discusses the relationship between long-run and short-run average cost curves, and how internal and external economies and diseconomies of scale can impact costs.
This document defines key concepts related to cost, including:
- Explicit costs refer to actual money spent on inputs, while implicit costs refer to the estimated value of owner-supplied inputs.
- Cost function studies the relationship between input costs and output levels.
- Short-run costs include total, fixed, and variable costs. Total cost equals fixed plus variable cost. Variable costs change with output while fixed costs do not.
- Marginal cost refers to the change in total cost from producing one additional unit of output.
This document discusses different types of costs involved in production. It defines fixed costs as expenses that cannot be changed in the short run, like rent and insurance, and variable costs as expenses that vary with output, such as raw materials and wages. Total cost is the sum of total fixed and total variable costs. As output increases, average fixed cost falls while average variable cost initially falls then rises, resulting in a U-shaped average total cost curve. Marginal cost is the change in total cost from producing an additional unit of output. The point where marginal cost equals average cost minimizes average total cost. Controlling costs is essential for business success.
The document discusses costs and output decisions for firms in the long run and short run. It provides an example of a car wash earning positive profits in the short run by setting output where marginal revenue equals marginal cost. In the long run, firms will enter industries with positive profits and exit industries with losses until prices equal minimum long-run average costs and profits are driven to zero.
The document discusses different types of costs in production including:
1. Cost of production refers to the total expenses incurred to produce a commodity, including costs of inputs, labor, technology, and efficiency.
2. Money costs include expenses like materials, wages, machinery, depreciation, interest, and profit. Real costs refer to the efforts and sacrifices of producers.
3. Opportunity cost is the next best alternative forgone in producing a good. For a farmer, it is the output of potatoes not produced by using resources for wheat.
The document discusses various cost concepts in economics including:
- Opportunity cost is the next best alternative use of a resource.
- Accounting costs include explicit payments, while economic costs also include implicit opportunity costs.
- Total, average, and marginal costs are defined for both the short-run and long-run. In the short-run some costs are fixed while in the long-run all costs are variable.
- 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.
The document discusses cost behavior and different types of costs in the short run and long run. In the short run, some costs are fixed while others are variable. Total cost is the sum of total fixed cost and total variable cost. As output increases, average and marginal costs typically decrease at first but then increase. In the long run, all costs are variable. Long run total, average, and marginal costs are determined based on optimal input combinations as output changes.
The document discusses different types of costs involved in production including money costs, real costs, opportunity costs, total costs, average costs, and marginal costs. It defines these terms and explains how they are calculated. For example, total cost is the sum of fixed and variable costs, average cost is total cost divided by output, and marginal cost is the change in total cost from producing one more unit. The document also discusses short-run and long-run cost curves including how average and marginal costs are related in both the short-run and long-run.
The document discusses different theories of cost, including traditional and modern theories. Under traditional theory, costs are categorized as total, average, and marginal in both the short-run and long-run. Total cost equals total fixed cost plus total variable cost. Average cost depends on average fixed and average variable cost. Marginal cost is the change in total cost from producing one additional unit. In the long-run, all costs are variable. Modern theory proposes cost curves are L-shaped rather than U-shaped as traditionally thought.
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 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.
This document discusses different types of costs including explicit, implicit, accounting, economic, replacement, fixed, variable, incremental, sunk, total, average, and marginal costs. It also covers cost concepts like total cost, average cost, marginal cost curves. Other topics covered include short run and long run costs, economies and diseconomies of scale, learning curves, and break-even analysis. Key cost relationships and cost minimization are also summarized.
This document is a project submission on microeconomics by Chanchal Saharma, a first year BBA student. It contains an introduction and contents section listing the main topics: cost, the relationship between total cost, variable cost and fixed cost, the relationship between average cost and marginal cost, and revenue. It then provides details on each topic in separate sections, defining key terms and concepts and illustrating relationships between costs and revenues with tables and graphs.
The document discusses cost theory concepts including opportunity costs, explicit and implicit costs, short-run and long-run costs, fixed and variable costs, total cost, average cost, and marginal cost. It explains how average, marginal, and total costs are related and how their curves are shaped. Specifically, it summarizes that marginal cost and short-run average cost curves slope upward due to diminishing returns, while the long-run average cost curve is U-shaped as economies of scale initially lower costs but diseconomies later raise them. The envelope relationship shows that short-run average costs are always above the minimum long-run average cost.
- Cost functions relate a firm's costs to its level of output and can be either short-run or long-run depending on whether inputs can be varied. Short-run functions are used for routine decisions while long-run functions consider investment.
- In the short-run, at least one input is fixed, so fixed costs remain constant while variable costs change with output. In the long-run, all inputs can be varied.
- Total cost is the sum of total fixed costs, which are constant, and total variable costs, which vary with output. Average and marginal costs are also important concepts for understanding cost behavior.
1. Cost is the expense incurred in producing a commodity and is determined by factor input prices. It is the most important factor governing a product's supply.
2. There are different types of costs including explicit costs like wages, implicit costs which do not appear in accounting records, actual costs involving financial expenditures, and opportunity costs which represent the next best alternative use of resources.
3. Cost analysis examines concepts like fixed and variable costs, average and marginal costs, and short-run versus long-run costs to help managers make optimal production decisions.
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.
The document discusses the costs of production for firms. It defines different types of costs including fixed costs, variable costs, total costs, average costs, and marginal costs. Fixed costs remain constant regardless of the amount of output, while variable costs change with output. Total cost is the sum of fixed and variable costs. The document also discusses how cost curves like total cost, average cost, and marginal cost shift when costs or technology change.
Cost analysis refers to studying how costs change with production levels and other economic factors. Costs are classified as explicit or implicit, and by their behavior as fixed, variable, or semi-variable. In the short run, average and marginal costs decrease initially as output rises due to efficiencies, but average costs eventually increase due to diminishing returns. In the long run, all factors are variable and average costs decrease with larger scale until an optimal size is reached.
Costs Of Production Micro Economics ECO101Sabih Kamran
This document discusses the costs of production for a firm. It begins by defining a firm and its goal of profit maximization. It explains that a firm faces constraints from technology, information, and markets. It also discusses the five basic decisions a firm must make: what and how much to produce, how to produce, how to organize workers, how to market and price products, and what to produce internally vs externally.
The document then explains the differences between short-run and long-run time frames. In the short-run, capital is fixed while variable inputs can change, while in the long-run all inputs are variable. It introduces the concepts of total, average, and marginal costs. Finally, it discusses how
This document discusses different types of costs involved in production, including:
- Explicit costs which are actual payments, versus implicit costs which are work done without monetary payment
- Private costs accrued by firms/individuals engaged in an activity, versus external/social costs passed to society
- Sunk costs which cannot be recovered and should be ignored in decisions
- Money costs which are payments to factors of production
- Opportunity cost as the next best alternative foregone in producing something
It also explains concepts like fixed costs, variable costs, total costs, average costs and marginal cost, and how they relate in the short-run and long-run, including economies and diseconomies of scale. Diagrams are used to depict
1) In the short run, firms have both fixed and variable costs. Fixed costs do not depend on output while variable costs do. Marginal cost is the change in total cost from producing one more unit of output.
2) As a firm increases output in the short run, marginal costs will initially decrease but eventually rise as it approaches its fixed capacity. Average costs also fall at first but then rise as marginal costs increase.
3) A profit-maximizing firm will produce the quantity where marginal revenue equals marginal cost, which is also where average total cost is minimized in perfect competition. The marginal cost curve represents the firm's short-run supply curve.
- In the short run, firms have fixed costs that do not depend on output level. They also have variable costs that vary with output. Total costs are the sum of fixed and variable costs.
- Marginal cost is the change in total cost from producing one additional unit. It reflects changes in variable costs. Marginal cost typically rises as output increases in the short run due to diminishing returns.
- A profit-maximizing firm will produce the quantity where marginal revenue equals marginal cost. In perfect competition, this occurs where price equals marginal cost.
Consumer behaviour refers to how individuals make purchasing decisions regarding products and services. It is influenced by cultural, social, personal and psychological factors. The document outlines the various factors that influence consumer behaviour such as cultural factors, social factors, personal factors and psychological factors. It also discusses concepts related to consumer behaviour such as perception, buying motives, buying roles, types of buyer behaviour and the consumer decision making process.
This document provides definitions and formulas for various financial ratios used to analyze a company's profitability, liquidity, asset utilization, debt levels, and returns. The ratios are grouped into categories including operating cycle, liquidity, profitability, activity, financial leverage, shareholder ratios, and return ratios. Key formulas include calculations for current ratio, inventory turnover, return on equity, and price-earnings ratio. The ratios and their formulas allow for analysis of a company's performance and financial health.
This document outlines questions for a first semester MBA degree exam. It includes 8 questions covering topics like primary and secondary data, measures of central tendency and dispersion, correlation, probability, sampling, hypothesis testing, and short notes on scatter diagrams, Bayes' theorem, binomial distribution, and F-tests. Students are instructed to answer any 5 full questions that carry equal marks. Standard normal distribution tables may be provided.
Common guidelines for model question paper pattern first semester mba2012 b...Sagar Kothurwar
1. The document provides guidelines for constructing model question papers for MBA exams, including question type breakdown and time recommendations.
2. Questions are divided into three parts - Part A focuses on knowledge-based questions, Part B tests skills, and Part C evaluates ability via a case study. Knowledge questions range from 3-15 marks testing various depths of understanding.
3. The guidelines specify the format and expected length of answers for different question types. Skill and ability questions in Parts B and C also follow defined formats to test application of concepts and analytical abilities.
The document discusses rule-based expert systems. It describes the key components of a rule-based expert system including the knowledge base containing if-then rules, a working memory that stores facts, and an inference engine that applies rules to derive new facts. Rules are represented as IF-THEN structures and can represent different types of knowledge like relations, recommendations, directives, and strategies. The development of expert systems involves domain experts, knowledge engineers, programmers, project managers, and end-users.
The document provides information on business applications and processes. It discusses business processes and examples like manufacturing, sales and marketing, finance and accounting, and human resources. It then gives examples of information systems that support these processes, such as ERP systems, supply chain management systems, and CRM systems. Finally, it discusses the benefits of enterprise systems for integrating business processes and information flow across an organization.
Telecommunication networks provide several business benefits for networked enterprises, including better communication, data distribution, instant transactions, a flexible workforce, and greater efficiency. As businesses become digital firms, they are able to develop digitally-enabled relationships and seamless information flow. Telecommunication networks are made up of various components including people, hardware, software, data, and network resources. Common network topologies used include star, ring, and bus networks. Businesses can leverage telecommunication networks and the internet to collaborate, provide customer support, engage in e-commerce, and realize cost savings. Intranets also allow internal information sharing and communication within an organization.
Group Decision Support Systems (GDSS) are computer-based systems that support group collaboration and decision making. A GDSS provides tools for brainstorming, voting, organizing ideas, and facilitating discussions to help groups make decisions more efficiently. It allows groups to have structured electronic meetings where each participant has their own computer connected to the system. The GDSS collects and saves all input to provide a full record of the meeting. Using a GDSS can improve decision quality, increase participation, and help groups make decisions more quickly.
People and businesses need information for different purposes. For individuals, information provides entertainment and enlightenment, while businesses use information for decision making, problem solving, and control. Data refers to raw facts, while information involves organizing data in a way that provides value beyond the individual facts. An information system is made up of interrelated components that collect, process, store, and disseminate data and information to meet an objective.
There are three main categories of information systems that serve different organizational levels:
1. Operational-level systems support operational managers and track basic transactions.
2. Management-level systems serve middle managers and provide reports and historical records to support planning, controlling, and decision making.
3. Strategic-level systems help senior management address long-term strategic issues and trends.
The document discusses various aspects of organizing and organizational structure. It defines organizing as the process of determining activities, arranging them into units, and assigning authority and responsibilities. It also discusses different types of organizational structures like functional, divisional, matrix structures. Some key points made are:
1) Organizing involves establishing objectives, identifying and grouping tasks, and delegating authority. The outcome is the organizational structure which can be formal or informal.
2) Common structures include functional (by department), divisional (by product/region), and matrix (combining functional and divisional).
3) Contemporary structures are less hierarchical and include virtual teams, network and boundaryless organizations with more flexible structures.
4
The document discusses various types of plans used in management including missions, objectives, strategies, policies, procedures, rules, programs, and budgets. It also discusses strategic planning processes, management by objectives, and using a TOWS matrix to analyze strengths, weaknesses, opportunities, and threats when developing strategies.
Management involves designing and maintaining an environment where individuals work together efficiently to achieve goals. The document discusses the changing role of CEOs, key characteristics of management, major contributors to management thought, and describes management as both a science and an art. It also outlines the five main managerial functions of planning, organizing, staffing, leading, and controlling.
Organizational Behavior (OB) is the study of how individuals and groups act within organizations and how their behaviors impact organizational effectiveness. The document discusses key OB concepts like culture, social systems, and challenges faced by modern organizations. It also provides a brief history of OB, highlighting important early studies and theories that helped establish the field. Finally, the document outlines some limitations of OB and how the discipline may evolve further in the future to address new business realities.
The document discusses different market structures and pricing strategies. It begins by defining a market and classifying markets based on competition. There are three main classifications discussed - perfect competition, imperfect competition (monopoly, oligopoly, monopolistic competition), and pure competition. The summary then discusses key aspects of each market structure, including price determination under different conditions. Pricing strategies like full cost pricing, product line pricing, and descriptive pricing approaches are also summarized at a high level.
The document discusses production analysis and key concepts including:
1. Production refers to the transformation of inputs into outputs using a given technology. A production function shows the relationship between inputs like labor, capital, and technology and the maximum output.
2. The law of diminishing returns explains that as one variable input is increased while others stay fixed, marginal and then average product will eventually diminish.
3. Returns to scale refer to how output changes proportionally with a proportional change in all inputs and can be increasing, constant, or decreasing.
The document discusses demand analysis and forecasting. It defines demand and outlines the key determinants and types of demand, including price demand, income demand, and cross demand. It also explains the law of demand and its assumptions. Methods of measuring price elasticity of demand are described, including the total expenditure method, point method, and arc method. The significance and levels of demand forecasting are discussed. The main methods of demand forecasting are the survey method, including expert opinion surveys and consumer interviews, and statistical methods.
The document discusses several fundamental principles of managerial economics, including:
1) Opportunity cost, which is the expected income foregone from the second best opportunity when choosing the best alternative.
2) Incremental costs, which are the additional costs that arise due to a business decision like setting up a new plant.
3) Time perspective, which refers to the relevant past and foreseeable future period that is considered when making decisions.
4) Discounting, which means that future costs and revenues must be adjusted to present values before comparing alternatives.
The document discusses the meaning and scope of managerial economics. It defines managerial economics as the application of economic theories and methods to solve business problems and aid decision making. Managerial economics draws upon microeconomics concepts and tools related to demand analysis, cost analysis, production, pricing, profit, and capital management. It has a pragmatic nature and helps managers make production, inventory, cost, marketing, investment, and personnel decisions.
The break-even analysis determines the volume of sales at which revenues and costs are equal, known as the break-even point. The break-even point can be calculated in terms of either physical units or money value of sales. It is the level of sales where total revenues equal total costs, resulting in no profit or loss. The margin of safety is the amount of sales over the break-even point, indicating how much sales can decrease before the firm loses money. Break-even analysis is useful for profit planning, capacity expansion decisions, and determining whether to make or buy a product.
1. COST AND REVENUE FUNCTIONS, SHORT RUN COST CURVES, AND LONG RUN COST
CURVES.
Cost of Production
Meaning:
Cost of Production refers to the total money expenses(both explicit and implicit)
incurred by the producers in the process of transforming inputs into outputs.
Cost is analyzed from the producers point of view .Cost estimates are always made in
terms of money.
Cost Concepts
A. Money Cost and Real Cost
When cost of production is expressed in terms of money, it is called as money cost.
If the cost is expressed in terms of physical efforts or mental efforts put in by various
people in the production of a commodity, it is called as real cost.
B. Explicit Cost and Implicit Cost
Explicit cost refer to the actual money outlay or out of pocket expenditure of the firm
to buy or hire the productive resources it needs in the process of production.
The following items of a firms expenditure are explicit money costs.
1. Cost of raw materials
2. Wages and Salaries
3. Power charges
4. Rent of Factory Premises
5. Interest Payment on Capital
6. Insurance premium
7. Property Tax, License Fee etc
8. Miscellaneous Business expenses like Marketing and Advertising expenses.
2. Implicit costs are payments which are not actually paid by the firm. Such costs arise when the
entrepreneur supplies certain factors owned by himself.
The implicit money costs are as follows:
Wages for labour rendered by the entrepreneur himself
Interest on capital supplied by him.
Rent for his own building used in production
Profits of enterpreneur
Depreciation C. Outlay Costs and Opportunity costs
Outlay cost is the actual financial expenditure of the firm. It is recorded in the firm’s
books of account.
For example, Payment of wages, interest, cost of raw materials, machines, etc.
Opportunity cost of the given economic resources is the foregone benefits from the
next best alternative use of that resource.
D. Short run and Long run Costs
On the basis of span of time in production , costs can be classified into short run costs
and long run costs.
Short run costs are the costs which vary with output in the short period when plant,
machinery, etc remain fixed.
Long run costs are the costs which vary with output when all inputs including plant,
machinery, etc vary.
Cost– Output Relationship
Cost-output relationship refers to the relationship between output and costs and the
behaviour of costs in relation to the change in output.
The relationship between cost and output is described as the “ cost function”.
TC = f(Q) Where TC --- Total cost of production
Q --- Quantity of output produced
Cost Function
The cost function depends on the three independent variables:
3. 1. Production function
2. Market prices of inputs
3. Period of time
Types of Cost FunctionsIn economic theory there are mainly 2 types of cost functions. They are:
Short run cost function
Long run cost function
Cost output relationships or cost behaviour is discussed for the short period and the
long period separately.
When this relationship is represented with the help of diagram we get the short and long run
cost curves.
Meaning Of Short Run
Short run is a period of time in which only the variable factors can be varied. While the
fixed factors like plant, machinery, management, etc remain constant. The total no of firms in an
industry will remain the same.
Cost—Output Relationship And The Behaviour Of Cost Curves In The Short Run
Cost Schedule:
A Cost Schedule is a list or statement showing variations in costs resulting from
variations in the levels of output.
It shows the response of cost to changes in output.
On the basis of the cost schedule we can analyse the relationship between changes in
the level of output and cost of production.
4. 1. Total Fixed Cost (TFC)
Total Fixed Costs refers to the total money expenses incurred on fixed inputs like
Plant, machinery , tools and equipments in the short run. They are fixed in nature. They are the
costs a firm has to incur even when the output is zero.
Matthematically,
TFC = TC – TVC
where TVC = Total Variable Cost
TC = Total Cost
5. 2. Total Variable Cost (TVC)
Total Variable Cost refers to the total money expenses incurred on variable
factor inputs like raw materials, electricity, fuel, transportation, advertisement, etc in the
short run. The variable cost vary directly with the output.
TVC = TC – TFC
3. Total Cost (TC)
Total cost refers to the aggregate money expenditure incurred by a firm to
produce a given quantity of output.
6. Mathematically, TC = f(Q)
which means that total cost varies with level of output.
TC = TCF + TVC.
TC varies in the same proportion as in TVC. The behaviour of TFC, TVC & TC are
shown in the following diagram.
4. Average Fixed Cost (AFC) is the fixed cost per unit of output produced. It is found out by
dividing the total fixed cost by total output.
AFC = TFC Q
Where ‘Q’ represents output.
An important character of AFC is that it goes on decreasing as output increases since
the amount of total fixed cost is being divided by larger no. of units of output produced. The
greater the output the smaller will be the average fixed cost.
7. Average variable cost (AVC) is the variable cost per unit of output. It is found out by dividing
the total variable cost by the total output.
AVC =TVC
Q
where ‘Q’ represents the total output.
An important character of AVC is that it will decline in the beginning as output
increase, but when a certain stage is reached it stops declining. This is the stage when the
stage has reached its full capacity of production.
8. 6. Average cost (AC) is the cost per unit of the output. This is found out by dividing the total
cost by the total output. Since the total cost consists of fixed cost & variable cost, the average
cost will be equal to the sum of average fixed cost & average variable cost.
AC = TC / Q = TC / Total output.
= FC + VC / Total output.
= TFC + TVC / Q
Where ‘Q’ stands for the total output.
= AFC + AVC.
9. The Behaviour of AFC,AVC and AC
In the short run the AC curve tends to be U-shaped. The combined influence of AFC
and AVC curves will shape the nature of AC curve.
AFC begins to fall with an increase
in output.
AVC comes down upto a particular level and then rises.
10. 7. Marginal Cost (MC)
Marginal costs may be defined as the net addition to the total cost as one more unit
of output is produced.
It implies additional cost incurred to produce an additional unit.
MC = change in TC
change in TQ
Where TC = Total cost
TQ = Total output.
Or
MC = TCn — TCn-1
11.
12. Relationship between MC and AC
1. When AC is falling , MC is also falling. When AC and MC curves are falling MC curve is lies
below the AC curve.
2. When Ac is minimum, the MC=AC.
3. Once MC=AC, when both the costs are rising , MC curve will always lie above the AC curve.
Cost–Output Relationship in the Long Run
Long period is a period during which the quantities of all factors variable as well as fixed
factors can be varied according to the requirements.
In the long run a firm is not tied upto a particular plant capacity. If the demandincreases, it
can expand output by enlarging its plant capacity.
If the demand for the product declines , a firm can cut down its production capacity. Hence
production cost comes down to a great extent in the long run.
As all costs are variable in the long run , the total of these costs is the total cost of production.
In the long run only average cost is important and considered in taking long term output
decisions.
Long run average cost= TC
13. Output
It is the per unit cost of production at different levels of output by changing the size of
the plant.
The long run cost output relationship is explained by drawing a long run cost curve through
short run cost curves.
The long run cost curve is influenced by the Laws of Returns To Scale.
The long run cost curve explains how costs will change when the scale of production varies.
Important Features of LAC Curve
1. Tangent Curve
2. Envelope Curve
3. Planning Curve
4. Flatter U Shaped Curve
Long Run Marginal Cost Curve
The long run marginal cost curve is derived from long run total cost curve at the
various points relating to the given level of output at each time.
14. The LMC curve also has a flatter U- shape, indicating that initially as output expands in
the long run with the increasing scale of production , LMC tends to decline. At a certain stage however
LMC tends to increase.
REVENUE CONCEPTS
The amount of money which a firm receives by the sale of its output in the market is
known as its revenue.
The revenue concepts commonly used in economics are
1. Total revenue
2. Average revenue
3. Marginal revenue
1. Total Revenue
Total revenue refers to the total amount of money that the firm receives from the sale
of its products.
The TR can be calculated by following formula:
TR = Q x P
where TR = Total revenue
Q = Quantity of output
P = Price per unit of the Commodity
15. 2. Average Revenue
Average revenue can be obtained by dividing the total revenue by the number of units
sold.
AR = TR
Q
where AR is the revenue earned per unit of commodity sold. AR is the price of the commodity.
The price paid by the consumer is the revenue realised by the producer.
3.Marginal Revenue
Marginal revenue refers to the additional revenue earned by selling the
additional unit of output by the seller.
Mathematically,
MR = TRn – TRn-1
Or
MR = change in TR
change in Q