- The document discusses factor markets and how firms demand factors of production. It explains that in factor markets, households supply resources like labor and capital while firms demand these factors.
- It outlines the key differences between product and factor markets, noting that in factor markets the roles of suppliers and demanders are reversed. Firms demand factors derived from the demand for final goods, while households supply factors to earn income.
- The marginal revenue product (MRP) of a factor is the change in revenue from a one unit change in that factor. In perfect competition, firms maximize profits where MRP equals the marginal factor cost (MFC), which is equal to the factor price.
The definition of “Cost of Goods Sold” is the cost of goods that have been removed from inventory and delivered to customers (sold) during an accounting period
The cost of goods sold (COGS) represents the direct costs attributable to the production of goods sold by a company. It includes the cost of materials and direct labor to produce goods, but excludes indirect expenses like distribution costs. COGS is calculated by taking the beginning inventory, adding purchases, and subtracting the ending inventory. It is a key figure that appears on the income statement and is deducted from revenue to calculate gross margin. For manufacturers, COGS also includes costs like factory overhead and labor involved in the production process.
This document discusses various cost management techniques for determining product costs. It explains key terminology like work centers, job costing, process costing, direct and indirect costs. It describes how costs are determined based on the physical layout and production process. It also discusses estimating costs using standard costs versus tracking actual costs and how to develop bills of materials and routes to determine the direct costs of products.
Marginal costing is a type of flexible standard costing that separates fixed costs from variable costs. It is a comprehensive method for planning and monitoring costs based on resource drivers. Marginal costing ensures cost fluctuations from changes in operating levels are accurately predicted and incorporated into variance analysis. It has become widely accepted in business over the last 50 years. Marginal cost is the change in total cost from producing one more unit. It includes any additional costs to produce the next unit and varies depending on production levels and time periods considered. The relationship between marginal cost and economies of scale depends on whether average or marginal costs are falling or rising with production. Externalities can cause private and social costs to diverge.
CostingNet specific user manual, step by step using illustration of the software Cost sheet, quotation modules and comparison reports. find out cheapest fabrics, trims and supplier. most generous customer.
CVP (cost-volume-profit) analysis studies the effects of changes in costs and volume on profits. It examines the break-even point, where total revenue equals total costs, and is used to set prices, determine product mix, maximize production, and evaluate cost impacts. CVP establishes the relationships between fixed costs, variable costs, contribution margin, and sales to calculate break-even points and target profits in units and revenue.
Chapter 2 cost terms, concepts and classifications 2012 students(1)Abu_Islam
This chapter discusses cost terms, concepts, and classifications. It defines costs and gives examples. It explains that a cost object is anything for which cost data is desired, like products or organizational subunits. It's important to know costs according to a cost object to determine selling prices. Costs are classified in different ways like variable/fixed, direct/indirect, and sunk/differential/opportunity costs for income statements, predicting behavior, assigning to cost objects, and making decisions. Manufacturing and merchandising activities are also compared.
This document discusses cost concepts and break-even analysis. It defines different types of costs such as explicit, implicit, fixed, and variable costs. It also explains the concepts of normal profit, incremental costs, sunk costs, and private and social costs. The document then provides an introduction to break-even analysis, discussing how to calculate the break-even point, total revenue, total costs, and profit or loss. It demonstrates using an example how to determine the number of units that must be sold to break even. The document concludes by discussing the uses and limitations of break-even analysis.
The definition of “Cost of Goods Sold” is the cost of goods that have been removed from inventory and delivered to customers (sold) during an accounting period
The cost of goods sold (COGS) represents the direct costs attributable to the production of goods sold by a company. It includes the cost of materials and direct labor to produce goods, but excludes indirect expenses like distribution costs. COGS is calculated by taking the beginning inventory, adding purchases, and subtracting the ending inventory. It is a key figure that appears on the income statement and is deducted from revenue to calculate gross margin. For manufacturers, COGS also includes costs like factory overhead and labor involved in the production process.
This document discusses various cost management techniques for determining product costs. It explains key terminology like work centers, job costing, process costing, direct and indirect costs. It describes how costs are determined based on the physical layout and production process. It also discusses estimating costs using standard costs versus tracking actual costs and how to develop bills of materials and routes to determine the direct costs of products.
Marginal costing is a type of flexible standard costing that separates fixed costs from variable costs. It is a comprehensive method for planning and monitoring costs based on resource drivers. Marginal costing ensures cost fluctuations from changes in operating levels are accurately predicted and incorporated into variance analysis. It has become widely accepted in business over the last 50 years. Marginal cost is the change in total cost from producing one more unit. It includes any additional costs to produce the next unit and varies depending on production levels and time periods considered. The relationship between marginal cost and economies of scale depends on whether average or marginal costs are falling or rising with production. Externalities can cause private and social costs to diverge.
CostingNet specific user manual, step by step using illustration of the software Cost sheet, quotation modules and comparison reports. find out cheapest fabrics, trims and supplier. most generous customer.
CVP (cost-volume-profit) analysis studies the effects of changes in costs and volume on profits. It examines the break-even point, where total revenue equals total costs, and is used to set prices, determine product mix, maximize production, and evaluate cost impacts. CVP establishes the relationships between fixed costs, variable costs, contribution margin, and sales to calculate break-even points and target profits in units and revenue.
Chapter 2 cost terms, concepts and classifications 2012 students(1)Abu_Islam
This chapter discusses cost terms, concepts, and classifications. It defines costs and gives examples. It explains that a cost object is anything for which cost data is desired, like products or organizational subunits. It's important to know costs according to a cost object to determine selling prices. Costs are classified in different ways like variable/fixed, direct/indirect, and sunk/differential/opportunity costs for income statements, predicting behavior, assigning to cost objects, and making decisions. Manufacturing and merchandising activities are also compared.
This document discusses cost concepts and break-even analysis. It defines different types of costs such as explicit, implicit, fixed, and variable costs. It also explains the concepts of normal profit, incremental costs, sunk costs, and private and social costs. The document then provides an introduction to break-even analysis, discussing how to calculate the break-even point, total revenue, total costs, and profit or loss. It demonstrates using an example how to determine the number of units that must be sold to break even. The document concludes by discussing the uses and limitations of break-even analysis.
Marginal costing is a technique that classifies costs into fixed and variable costs. Only variable costs are considered in calculating the cost per unit of a product. The difference between sales revenue and variable costs is known as the contribution, which is used to cover fixed costs and determine profitability. Marginal costing helps managers make decisions around pricing, production levels, and profitability by focusing on the relationship between contribution and sales volume. The breakeven point is where total sales revenue equals total costs, indicating no profit or loss.
This document provides examples and explanations of cost-volume-profit (CVP) analysis concepts. It includes definitions of key CVP terms like break-even point, contribution margin, variable cost ratio, and sales mix. Examples are provided to demonstrate how to calculate break-even units and sales using CVP formulas. The effects of changes in variables like fixed costs, variable costs, selling price, and sales mix on break-even points are also illustrated.
This document discusses various cost concepts that are relevant for business operations and decision making. It groups the cost concepts into two categories: 1) accounting cost concepts used for accounting purposes and 2) analytical cost concepts used for economic analysis of business activities. Some key concepts discussed include opportunity cost vs actual cost, fixed vs variable cost, total/average/marginal cost, short-run vs long-run cost, historical vs replacement cost, and private vs social cost.
This document discusses cost behavior and different types of costs. It defines variable costs as changing proportionally with activity level and fixed costs as remaining constant despite changes in activity. Total and per-unit cost behaviors are examined for variable and fixed costs. Examples are provided to illustrate concepts. Methods for analyzing mixed costs are presented, including high-low, scattergraph, and least squares regression. The contribution format income statement is introduced as a way to organize costs by behavior.
Break Even Analysis refers to analyzing the break-even point (BEP), which is the point at which total revenue equals total cost, resulting in no profit or loss. The BEP denotes the minimum production volume needed to avoid losses. Determinants of BEP include selling price, contribution margin, contribution margin ratio, fixed costs, and variable costs per unit. Examples then demonstrate calculating BEP in terms of units and sales value, margin of safety, and production needed to achieve a specified profit level.
Cost Accounting : Determining How Cost Behavesmingxinlu
This document discusses how to determine cost behavior by estimating cost functions based on the relationship between costs and activity levels. It outlines the key steps in estimating cost functions, including choosing a dependent cost variable and independent cost driver, collecting data, and evaluating the fit of linear and nonlinear models. Common issues with data collection like inconsistent time periods or unreliable measurements are also addressed.
This document discusses overhead costs, including defining overhead as indirect material, wages, and expenses. It covers types of overheads like production, administration, selling, and distribution overheads. Methods of classifying and assigning overheads to cost centers are presented, including allocation, apportionment, and absorption rates. Formulas for calculating predetermined overhead rates using different bases are provided.
This document summarizes absorption costing and marginal costing. Absorption costing treats all manufacturing costs, including both fixed and variable costs, as product costs. Marginal costing treats only variable manufacturing costs as product costs, regarding fixed costs as period costs. Absorption costing follows generally accepted accounting principles but may distort profits, while marginal costing is more relevant for decision making but can manipulate profits. Breakeven analysis uses cost-volume concepts to determine sales needed to cover total costs and achieve a target profit level.
- Cost accounting is used to estimate product costs, calculate work-in-progress costs, and control costs by comparing actual and estimated costs.
- There are three elements of cost: direct materials, direct labor, and other expenses which can be direct or indirect.
- Costs are traced to cost centers, which are areas responsible for costs like manufacturing departments. Costs are allocated or apportioned to cost centers and then absorbed into total product costs.
- Predetermined overhead rates are used to estimate overhead costs which are then compared to actual overhead costs at the end of the period to determine if overhead was under- or over-absorbed.
This document provides an overview of cost-volume-profit (CVP) analysis. It defines CVP analysis and notes that it is used to study how profits change with volume, costs, and prices. The key assumptions of CVP analysis are described, including constant unit costs and prices. The components of a CVP analysis, including fixed costs, variable costs, sales price, and contribution margin, are defined. The relationships between these components in a CVP graph and chart are explained. The document then discusses how profits are affected by changes in volume, price, variable costs, fixed costs, and combinations of factors. It also covers the utility and limitations of CVP analysis and break-even charts.
Cost Volume Profit (CVP).
Introduction
Fixed costs
Variable costs
Semi variable costs
Contribution margin
Break even point
PV Ratio
BEP ANalysis.
break even point
Cost-volume-Profit.
This document provides an overview of absorption costing and marginal costing. Absorption costing treats all manufacturing costs, including fixed costs, as product costs. Marginal costing treats only variable manufacturing costs as product costs and regards fixed costs as period costs. The document also discusses the treatment of fixed overheads, valuation of closing stock, and reported profit under each method. It then covers the concepts of break-even analysis including calculation of break-even point, target profit, margin of safety, and the impact of changes in cost and revenue components. The limitations of break-even analysis are also summarized.
This chapter discusses labor costs, including distinguishing between direct and indirect labor costs. It covers labor cost control methods like timekeeping and time booking. Different wage payment systems like time rates, piece rates, and bonus systems are explained. Key aspects of labor costs include labor turnover calculation methods, maintaining payroll records, and generating pay slips that include salary deductions. Departments involved in labor cost control are also listed.
This document discusses methods for estimating cost functions and determining the optimal scale of operations. It covers:
1. Short-run and long-run cost functions which can be estimated statistically using regression analysis and engineering cost techniques.
2. Factors that influence costs such as output mix, input prices, and technology. Controling for these is important to isolate the cost-output relationship.
3. Break-even analysis and contribution margin which are used to determine output levels required to cover fixed costs and earn profits. The relevance of different costs depends on whether alternatives are avoidable.
4. Operating leverage and business risk which depend on a firm's fixed costs, sales variability, and degree of operating leverage.
This document discusses various cost concepts including cost methods, cost techniques, costing systems, cost classification, and elements of cost. It defines different types of costs such as fixed costs, variable costs, semi-variable costs, normal costs, abnormal costs, controllable costs, uncontrollable costs, relevant costs, and irrelevant costs. It also discusses inventoriable costs versus period costs.
This document provides an introduction to accounting concepts related to cost. It defines cost accounting as recording and summarizing financial transactions and events in terms of money. It also discusses the different types of accounting, including financial accounting which publishes reports for external users, and management accounting which provides information to managers for decision making. Finally, it outlines the key steps in calculating cost of goods manufactured and cost of goods sold.
Introduction to Managerial Accounting and Cost ConceptsViệt Hoàng Dương
The document provides an overview of managerial accounting concepts including the four functions of management, planning and control cycles, classifications of manufacturing costs, and distinctions between product and period costs. It defines direct materials, direct labor, and manufacturing overhead as the three basic manufacturing cost categories. Product costs include direct materials, direct labor, and manufacturing overhead, and are recorded in inventory accounts. Period costs are expensed on the income statement as incurred rather than included in inventory.
The document also discusses the schedule of cost of goods manufactured, which calculates manufacturing costs to determine the cost of goods produced during a period. It distinguishes between variable costs, which change with activity levels, and fixed costs, which remain constant with changes in activity.
The document discusses the demand for labor from the perspective of individual firms and the overall labor market. It explains that in the short-run, a firm's demand for labor (its marginal revenue product curve) depends on the marginal product of labor. In the long-run, when both capital and labor are variable, firms will substitute between the two inputs in response to wage changes. The market demand for labor is less elastic than the sum of individual firm demands, due to product price effects. The elasticity of labor demand depends on factors like the elasticity of product demand and the share of labor costs in total costs.
This document provides an overview of key economic concepts related to the price system and theory of the firm. It covers topics such as demand and supply, costs of production, market structures, and profit maximization. Several examples and exercises are provided to illustrate key points. The document is intended as a supplemental guide for students taking an A-Level Economics course. It defines important terminology and uses graphs and data to explain fundamental economic principles in the subject areas.
Perfect competition requires: firms are price takers, many sellers/buyers, free entry/exit, identical products, complete information. In short-run, individual firms maximize profits where marginal cost (MC) equals marginal revenue (MR). Market supply is the sum of individual firm MC curves. In long-run, zero economic profits are achieved as new entry drives prices down until MC equals average costs.
This document provides an introduction to labour economics. It discusses key concepts such as labour demand and supply, and how they interact in the labour market to determine equilibrium wage and quantity. Labour demand comes from firms and is affected by the wage rate, capital costs and output prices. Firms will maximize profits by hiring workers up to the point where marginal revenue product equals marginal factor cost. Labour supply depends on wages as well as income and substitution effects. The interaction of labour demand and supply curves results in the equilibrium wage and employment level in the market. Monopsony and factors like unions, minimum wages can impact the wage-employment relationship. Unemployment may occur if demand shifts leftward resulting in a surplus of workers.
Marginal costing is a technique that classifies costs into fixed and variable costs. Only variable costs are considered in calculating the cost per unit of a product. The difference between sales revenue and variable costs is known as the contribution, which is used to cover fixed costs and determine profitability. Marginal costing helps managers make decisions around pricing, production levels, and profitability by focusing on the relationship between contribution and sales volume. The breakeven point is where total sales revenue equals total costs, indicating no profit or loss.
This document provides examples and explanations of cost-volume-profit (CVP) analysis concepts. It includes definitions of key CVP terms like break-even point, contribution margin, variable cost ratio, and sales mix. Examples are provided to demonstrate how to calculate break-even units and sales using CVP formulas. The effects of changes in variables like fixed costs, variable costs, selling price, and sales mix on break-even points are also illustrated.
This document discusses various cost concepts that are relevant for business operations and decision making. It groups the cost concepts into two categories: 1) accounting cost concepts used for accounting purposes and 2) analytical cost concepts used for economic analysis of business activities. Some key concepts discussed include opportunity cost vs actual cost, fixed vs variable cost, total/average/marginal cost, short-run vs long-run cost, historical vs replacement cost, and private vs social cost.
This document discusses cost behavior and different types of costs. It defines variable costs as changing proportionally with activity level and fixed costs as remaining constant despite changes in activity. Total and per-unit cost behaviors are examined for variable and fixed costs. Examples are provided to illustrate concepts. Methods for analyzing mixed costs are presented, including high-low, scattergraph, and least squares regression. The contribution format income statement is introduced as a way to organize costs by behavior.
Break Even Analysis refers to analyzing the break-even point (BEP), which is the point at which total revenue equals total cost, resulting in no profit or loss. The BEP denotes the minimum production volume needed to avoid losses. Determinants of BEP include selling price, contribution margin, contribution margin ratio, fixed costs, and variable costs per unit. Examples then demonstrate calculating BEP in terms of units and sales value, margin of safety, and production needed to achieve a specified profit level.
Cost Accounting : Determining How Cost Behavesmingxinlu
This document discusses how to determine cost behavior by estimating cost functions based on the relationship between costs and activity levels. It outlines the key steps in estimating cost functions, including choosing a dependent cost variable and independent cost driver, collecting data, and evaluating the fit of linear and nonlinear models. Common issues with data collection like inconsistent time periods or unreliable measurements are also addressed.
This document discusses overhead costs, including defining overhead as indirect material, wages, and expenses. It covers types of overheads like production, administration, selling, and distribution overheads. Methods of classifying and assigning overheads to cost centers are presented, including allocation, apportionment, and absorption rates. Formulas for calculating predetermined overhead rates using different bases are provided.
This document summarizes absorption costing and marginal costing. Absorption costing treats all manufacturing costs, including both fixed and variable costs, as product costs. Marginal costing treats only variable manufacturing costs as product costs, regarding fixed costs as period costs. Absorption costing follows generally accepted accounting principles but may distort profits, while marginal costing is more relevant for decision making but can manipulate profits. Breakeven analysis uses cost-volume concepts to determine sales needed to cover total costs and achieve a target profit level.
- Cost accounting is used to estimate product costs, calculate work-in-progress costs, and control costs by comparing actual and estimated costs.
- There are three elements of cost: direct materials, direct labor, and other expenses which can be direct or indirect.
- Costs are traced to cost centers, which are areas responsible for costs like manufacturing departments. Costs are allocated or apportioned to cost centers and then absorbed into total product costs.
- Predetermined overhead rates are used to estimate overhead costs which are then compared to actual overhead costs at the end of the period to determine if overhead was under- or over-absorbed.
This document provides an overview of cost-volume-profit (CVP) analysis. It defines CVP analysis and notes that it is used to study how profits change with volume, costs, and prices. The key assumptions of CVP analysis are described, including constant unit costs and prices. The components of a CVP analysis, including fixed costs, variable costs, sales price, and contribution margin, are defined. The relationships between these components in a CVP graph and chart are explained. The document then discusses how profits are affected by changes in volume, price, variable costs, fixed costs, and combinations of factors. It also covers the utility and limitations of CVP analysis and break-even charts.
Cost Volume Profit (CVP).
Introduction
Fixed costs
Variable costs
Semi variable costs
Contribution margin
Break even point
PV Ratio
BEP ANalysis.
break even point
Cost-volume-Profit.
This document provides an overview of absorption costing and marginal costing. Absorption costing treats all manufacturing costs, including fixed costs, as product costs. Marginal costing treats only variable manufacturing costs as product costs and regards fixed costs as period costs. The document also discusses the treatment of fixed overheads, valuation of closing stock, and reported profit under each method. It then covers the concepts of break-even analysis including calculation of break-even point, target profit, margin of safety, and the impact of changes in cost and revenue components. The limitations of break-even analysis are also summarized.
This chapter discusses labor costs, including distinguishing between direct and indirect labor costs. It covers labor cost control methods like timekeeping and time booking. Different wage payment systems like time rates, piece rates, and bonus systems are explained. Key aspects of labor costs include labor turnover calculation methods, maintaining payroll records, and generating pay slips that include salary deductions. Departments involved in labor cost control are also listed.
This document discusses methods for estimating cost functions and determining the optimal scale of operations. It covers:
1. Short-run and long-run cost functions which can be estimated statistically using regression analysis and engineering cost techniques.
2. Factors that influence costs such as output mix, input prices, and technology. Controling for these is important to isolate the cost-output relationship.
3. Break-even analysis and contribution margin which are used to determine output levels required to cover fixed costs and earn profits. The relevance of different costs depends on whether alternatives are avoidable.
4. Operating leverage and business risk which depend on a firm's fixed costs, sales variability, and degree of operating leverage.
This document discusses various cost concepts including cost methods, cost techniques, costing systems, cost classification, and elements of cost. It defines different types of costs such as fixed costs, variable costs, semi-variable costs, normal costs, abnormal costs, controllable costs, uncontrollable costs, relevant costs, and irrelevant costs. It also discusses inventoriable costs versus period costs.
This document provides an introduction to accounting concepts related to cost. It defines cost accounting as recording and summarizing financial transactions and events in terms of money. It also discusses the different types of accounting, including financial accounting which publishes reports for external users, and management accounting which provides information to managers for decision making. Finally, it outlines the key steps in calculating cost of goods manufactured and cost of goods sold.
Introduction to Managerial Accounting and Cost ConceptsViệt Hoàng Dương
The document provides an overview of managerial accounting concepts including the four functions of management, planning and control cycles, classifications of manufacturing costs, and distinctions between product and period costs. It defines direct materials, direct labor, and manufacturing overhead as the three basic manufacturing cost categories. Product costs include direct materials, direct labor, and manufacturing overhead, and are recorded in inventory accounts. Period costs are expensed on the income statement as incurred rather than included in inventory.
The document also discusses the schedule of cost of goods manufactured, which calculates manufacturing costs to determine the cost of goods produced during a period. It distinguishes between variable costs, which change with activity levels, and fixed costs, which remain constant with changes in activity.
The document discusses the demand for labor from the perspective of individual firms and the overall labor market. It explains that in the short-run, a firm's demand for labor (its marginal revenue product curve) depends on the marginal product of labor. In the long-run, when both capital and labor are variable, firms will substitute between the two inputs in response to wage changes. The market demand for labor is less elastic than the sum of individual firm demands, due to product price effects. The elasticity of labor demand depends on factors like the elasticity of product demand and the share of labor costs in total costs.
This document provides an overview of key economic concepts related to the price system and theory of the firm. It covers topics such as demand and supply, costs of production, market structures, and profit maximization. Several examples and exercises are provided to illustrate key points. The document is intended as a supplemental guide for students taking an A-Level Economics course. It defines important terminology and uses graphs and data to explain fundamental economic principles in the subject areas.
Perfect competition requires: firms are price takers, many sellers/buyers, free entry/exit, identical products, complete information. In short-run, individual firms maximize profits where marginal cost (MC) equals marginal revenue (MR). Market supply is the sum of individual firm MC curves. In long-run, zero economic profits are achieved as new entry drives prices down until MC equals average costs.
This document provides an introduction to labour economics. It discusses key concepts such as labour demand and supply, and how they interact in the labour market to determine equilibrium wage and quantity. Labour demand comes from firms and is affected by the wage rate, capital costs and output prices. Firms will maximize profits by hiring workers up to the point where marginal revenue product equals marginal factor cost. Labour supply depends on wages as well as income and substitution effects. The interaction of labour demand and supply curves results in the equilibrium wage and employment level in the market. Monopsony and factors like unions, minimum wages can impact the wage-employment relationship. Unemployment may occur if demand shifts leftward resulting in a surplus of workers.
Wage Determination and the Allocation of Laborecogeeeeeks
This document discusses theories of wage determination in labor markets including perfectly competitive labor markets, monopsony, and delayed supply responses. In a perfectly competitive labor market, the equilibrium wage and employment are determined by the intersection of supply and demand. A monopsony is a labor market with a single employer, which pays workers less than a competitive wage and hires fewer workers, resulting in inefficiency. Delayed supply responses in some professions can lead to cyclical "cobweb" adjustments as supply lags behind changing demand.
This document discusses aggregate supply and the supply and demand functions of labor. It defines aggregate supply as the total supply of goods and services firms plan to sell in an economy at a given price level. The key components of aggregate supply are private consumer goods, capital goods, public/merit goods, and traded goods. The aggregate supply curve shows a positive relationship between price level and quantity supplied in the short run. The marginal product of labor determines the optimal number of workers for a firm. The labor demand curve shows the quantity of labor demanded at different wage rates based on profit maximization. Shifts in output price or technology can change labor demand. The labor supply curve slopes upward initially but may bend backward at higher wage rates due to
Here are the answers to identify the resource and shifter:
1. Increase in the demand for microprocessors leads to an increase in the demand for processor assemblers.
2. Increase in the price for plastic piping causes the demand for copper piping to increase.
3. Increase in demand for small homes (compared to big homes) leads to an increase in the demand for lumber.
4. For shipping companies, decrease in price of trains leads to decrease in demand for trucks.
5. Decrease in price of sugar leads to an increase in the demand for aluminum for soda producers.
6. Substantial increase in education and training leads to an increase in demand for skilled labor.
The document summarizes key concepts related to labor supply and demand. It discusses how individuals supply more labor as wages increase due to substitution and income effects. It also discusses how firms demand more labor as wages decrease due to marginal revenue product. The document concludes by discussing how market equilibrium is reached through the intersection of the labor supply and demand curves and factors like minimum wages that can shift this equilibrium.
1. The document discusses the marginal revenue product (MRP) theory of labour demand, which states that firms will demand labour up to the point where the marginal cost of an additional worker equals the marginal revenue product of that worker.
2. It provides examples to illustrate how marginal revenue product is calculated based on marginal physical product and output price. It also discusses how imperfect competition can impact marginal revenue product.
3. The document then discusses factors that can cause shifts in the demand for labour like changes in product demand, productivity, costs of employing workers, and technology. It also discusses the elasticity of labour demand.
Firms often produce multiple related products. When products are substitutes, increasing production of one reduces demand for the other. When complementary, increasing one boosts demand for the other. Profit maximization requires jointly determining prices and output levels. A firm should produce quantities where the marginal revenue from each product equals marginal cost. It prioritizes producing profitable products up to the point where the least profitable product's marginal cost equals marginal revenue. Joint products have interconnected production and demand. Firms maximize profits by setting marginal revenue of each joint product equal to their shared marginal cost.
Principles of Microeconomics Chapter Sevenkmurphy7642
This document provides an overview of key concepts related to perfect competition. It discusses the criteria for perfect competition, including many firms producing identical goods, free entry and exit into the market, and all parties having full information. Firms under perfect competition are price takers and maximize profits by producing where marginal revenue equals marginal cost. In the long run, perfectly competitive markets achieve both productive and allocative efficiency.
The document discusses the specific factor model of international trade. It describes how the model allows for trade to impact income distribution by having one mobile factor (labor) that can move between industries, while other factors are specific to each industry (capital and land). Production functions exhibit diminishing marginal returns to labor. The labor market determines equilibrium wage rates and labor allocation between industries. The production possibilities frontier is curved rather than linear, reflecting increasing opportunity costs as marginal productivity declines.
1. The specific factors model assumes two goods (cloth and food) are produced using labor, capital, and land as inputs. Labor is mobile between industries while capital and land are specific to each industry.
2. Under perfect competition, firms in each industry demand labor up to the point where the marginal revenue product of labor equals the prevailing wage rate.
3. The equilibrium allocation of labor across industries and the economy's production possibilities frontier are determined by equalizing wage rates in both industries.
The market is made up of buyers and sellers who conduct exchange transactions. Markets can be classified based on area, the nature of transactions, volume, time period, and level of competition. Under perfect competition, there are many small firms and homogeneous products. Individual firms are price takers and maximize profits where marginal revenue equals marginal cost. Monopolies have single firms and differentiated products, allowing them to be price makers that also set output at the point where marginal revenue equals marginal cost. Oligopolies feature a few interdependent firms, and pricing may involve price leadership or tacit collusion to coordinate prices.
- Labor markets can be analyzed using supply and demand models. The demand for labor is derived from the demand for the firm's product and depends on the marginal productivity of labor. Firms will hire labor up to the point where the marginal revenue product of labor (MRP) equals the marginal cost of labor (wage).
- The labor supply depends on various factors like the adult population, preferences, and time spent in school. Individuals supply labor to earn income, and the quantity supplied increases with higher wages. In competitive labor markets, firms are price takers and pay the market wage rate.
Monopolistic Equilibrium in short and long runShakti Yadav
In the short run, a monopolistically competitive firm will produce at the quantity where marginal cost equals marginal revenue to maximize profits. This occurs at a price above average cost, resulting in abnormal profits. In the long run, entry of new firms shifts individual demand curves down and costs curves up, eliminating abnormal profits so firms only earn normal profits where price equals average cost, establishing equilibrium.
1) The document discusses monopoly as a market structure characterized by a single seller of a unique product or service with significant barriers to entry.
2) Under monopoly, output is lower and prices are higher than under perfect competition, resulting in inefficient production. A monopolist faces a downward-sloping demand curve and sets price along the curve.
3) The monopolist maximizes profits by producing at the quantity where marginal revenue equals marginal cost, resulting in economic profits as average revenue exceeds average costs. The monopoly can earn economic profits even in the long run due to barriers to entry.
This document discusses market structures and pricing practices. It covers perfect competition, monopoly, monopolistic competition, and oligopoly market structures. For each structure, it describes characteristics, price and output determination in the short and long run, and examples. Perfect competition is considered the most efficient as it achieves allocative and productive efficiency. Monopoly is less efficient due to lower output and higher prices. Monopolistic competition and oligopoly introduce some inefficiencies through product differentiation and interdependence between firms respectively.
This document summarizes key concepts related to monopoly, including:
1) A monopoly firm is the sole seller of a product without close substitutes and can set price. It produces where marginal revenue equals marginal cost, resulting in lower output and higher prices than perfect competition.
2) Monopoly power can be measured by the Lerner Index, which is the excess of price over marginal cost as a proportion of price. Monopoly power is greater when demand is less elastic.
3) A monopoly faces a downward sloping demand curve. Changes in costs, demand, or taxes affect price and quantity in complex ways depending on the elasticity of demand.
The document defines efficiency as producing goods and services at the lowest possible cost to provide the greatest value. Markets are efficient when marginal cost equals marginal benefit. When price is lower than value, consumers enjoy surplus, and when price exceeds costs, producers earn surplus. However, markets can be inefficient due to price controls, taxes/subsidies, monopoly, public goods, and externalities, resulting in deadweight loss to society.
Similar to Price & inputs perfect competition a (20)
ISO/IEC 27001, ISO/IEC 42001, and GDPR: Best Practices for Implementation and...PECB
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His expertise extends across a diverse spectrum of reporting, database, and web development applications, underpinned by an exceptional grasp of data storage and virtualization technologies. His proficiency in application testing, database administration, and data cleansing ensures seamless execution of complex projects.
What sets Denis apart is his comprehensive understanding of Business and Systems Analysis technologies, honed through involvement in all phases of the Software Development Lifecycle (SDLC). From meticulous requirements gathering to precise analysis, innovative design, rigorous development, thorough testing, and successful implementation, he has consistently delivered exceptional results.
Throughout his career, he has taken on multifaceted roles, from leading technical project management teams to owning solutions that drive operational excellence. His conscientious and proactive approach is unwavering, whether he is working independently or collaboratively within a team. His ability to connect with colleagues on a personal level underscores his commitment to fostering a harmonious and productive workplace environment.
Date: May 29, 2024
Tags: Information Security, ISO/IEC 27001, ISO/IEC 42001, Artificial Intelligence, GDPR
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A review of the growth of the Israel Genealogy Research Association Database Collection for the last 12 months. Our collection is now passed the 3 million mark and still growing. See which archives have contributed the most. See the different types of records we have, and which years have had records added. You can also see what we have for the future.
A Strategic Approach: GenAI in EducationPeter Windle
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This presentation includes basic of PCOS their pathology and treatment and also Ayurveda correlation of PCOS and Ayurvedic line of treatment mentioned in classics.
Introduction to AI for Nonprofits with Tapp NetworkTechSoup
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How to Add Chatter in the odoo 17 ERP ModuleCeline George
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it describes the bony anatomy including the femoral head , acetabulum, labrum . also discusses the capsule , ligaments . muscle that act on the hip joint and the range of motion are outlined. factors affecting hip joint stability and weight transmission through the joint are summarized.
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Executive Directors Chat Leveraging AI for Diversity, Equity, and Inclusion
Price & inputs perfect competition a
1. Perfect Competition and Factor
Markets
By: Sam D. Fuego
School of Arts and Sciences
Ateneo de Zamboanga University
2. Factor Markets
• In this outline we have considered three main
parts of the circular flow model of a market
economy: the household sector, the producer
sector, and the goods markets in which the
two come together to determine the prices of
finished products (producers outputs) and the
quantities in which they are exchanged.
3. Learning objectives
- Identify important inputs to market structure;
- Distinguish between price taker and price
searcher;
- Explain Law of Diminishing Marginal Returns;
- Achieve maximize profits for optimal factor use;
- Calculate the following:
-
marginal revenue product (MRP)
marginal revenue (MR)
marginal physical product (MPP) and
marginal factor cost (MFC)
4. • Productive resources include:
• Natural
• Capital
• and Human resources and their sale by households to
producers is the source of household income.
The same mechanisms that determine how goods
and business receipts are allocated in product
markets determine how resources and income are
allocated in factor markets.
5. Roles and motivations in factor
markets differ from in product markets
• The roles and motivations of the suppliers and
demanders of factors differ from the roles and
motivations of the suppliers and demanders of
goods and services.
• 1. Roles in factor markets are the reverse of those
in goods markets.
– In goods or product markets, firms are suppliers and
households are demanders.
– In factor or resource markets, households are
suppliers and firms are demanders.
6. • 2. In goods or product markets, firms produce
and sell goods and services to gain economic
profits.
• In factor markets, households sell labor (and
other resource) services to earn income so
that they can purchase goods and services
that satisfy their material needs and wants.
7. • 3. The demand for factors is a derived demand;
the demand for goods and services is not.
Households demand goods and services
because they obtain intrinsic satisfaction or utility
from them. Firms demand factors not because
they obtain any intrinsic satisfaction or utility
from them, but because they can gain economic
profits by using them to produce goods and
services that do provide intrinsic satisfaction or
utility. Thus demand for factors is derived from
the demand for goods and services.
8. Household income
• Household income depends on factor
endowments and factor prices.
• The earned income of a particular household
depends on two variables:
– 1. the factor endowments of the household-that
is, the number and the quality of the productive
factors or resources that it owns and chooses to
sell, including its natural and capital, as well as its
human resources; and
9. • 2.) the prices that those factors or resources
command in the marketplace.
The household’s earned income will be high if it
owns and sells a large quantity of factors or if
its factors sell for high prices.
The household’s earned income will be low if it
owns and sell few resources or if its resources
sell for low prices.
10. Individual Demand for a
Variable Factor
• According to the marginal productivity theory,
a firm’s demand for a variable factor of
production, such as labor, is determined by
that factor’s contribution to the firm’s total
revenue.
• A factor’s contribution to a firm’s total
revenue is known as it marginal revenue
product (or, in some texts, as its value of
marginal product).
11. • Marginal revenue product (MRP) is the change
in the value of production for a one-unit
change in a variable factor.
• A factor’s marginal revenue product is the
mathematical product of two variables: 1.)
marginal physical product (MPP) and 2.)
marginal revenue (MR):
MRP = MPP x MR
12. • Marginal Physical Product is the change in
total product (or total output) that results
from a one-unit change in a variable input,
such as labor.
• Marginal Revenue is the change in total
revenue that results from a one-unit change in
quantity sold.
13. • Thus a factor’s marginal revenue product is
simply the revenue that a firm derives from
selling the marginal physical product or the
marginal output attributable to each
successive unit of the factor.
14. Marginal Physical Product (MPP)
• The law of marginal physical product, dictates
that, if other things remain constant, the
marginal physical product of a variable factor
must decline beyond some point as more and
more units of the factor are added to a
production process in which other inputs are
fixed. Because of this law, a firm’s MPP curve
for labor – or for any other variable factor of
production – has a negative slope beyond the
point at which diminishing returns set in.
15. •
Output/labor input
•
•
•
MPP
L
Labor inputs/week
The point at which diminishing returns set in is L units of labor inputs a week. Beyond that point, the curve
has a negative slope which means that, after the L unit of labor is added to the production process, each
additional unit of labor adds less to total output than the unit before it.
16. • The law of diminishing returns has one other
important implication that is relevant to this
discussion: Since marginal physical product
(MPP) for a variable input declines beyond
some point in the short run, then its MRP
curve for the same input must also decline
beyond some point (have a negative slope) in
the short run.
17. The Law of diminishing
marginal returns
• The law states that if a firm increases the
amount of one input (holding all other input
quantities constant), the marginal physical
product of the expanding input will eventually
begin to decline.
18. • Since Sam’s Iron works sells iron in a perfectly
competitive market for $4 a piece, the
marginal revenue that it derives from selling
each additional iron is $4. Thus its MRP
schedule for labor can be found by multiplying
its MPP schedule for labor by $4, as shown in
the following table:
19. Sam’s Iron works schedule
Units of labor
Total output
MPP
MR
MRP
0
0
0
-
-
1
8
8
$4
$32
2
15
7
4
28
3
21
6
4
24
4
26
5
4
20
5
30
4
4
16
20. Competitive factor market:
marginal factor cost equals factor price
• A firm in a perfectly competitive product
market perceives the demand curve that it
faces as horizontal at the market price.
• Similarly, a firm in a perfectly competitive
factor market perceives the supply curve that
it faces as horizontal at the market price.
21. • A horizontal factor supply curve has two
important implications.
– First, it implies that a firm purchasing factor services,
such as labor, can purchase any quantity that it
choose to purchase without affecting the market price
of those services.
– Second, it implies that each additional unit of the
factor services that the firm purchases adds the same
amount, its price, to the firm’s total factor costs. That
amount is known as marginal factor cost.
22. • Marginal factor cost (MFC) is the change in
total factor cost for a one-unit change in the
use of a factor.
change in total factor cost
MFC =
change in quantity of factor
23. • Thus in a perfectly competitive factor
market, marginal factor cost equals factor
price, which, in a labor market, is the wage
rate (W) of the factor:
MFC = P (or W)
24. Illustration:
• The Sam’s Iron Works hires labor services in a perfectly
competitive labor market for $20 a unit. Thus the
manager of Sam’s Iron Works perceives the labor
supply that he faces as horizontal at $20. Since the
manager can hire any quantity of labor services that he
wants to hire without driving that price up, he knows
that, if he expands the use of labor inputs at his
plant, each additional unit will add the same
amount, $20, to his total labor costs. In other
words, the marginal factor cost (MFC) of each unit will
be the same as its price or wage rate: MFC = factor
price (wage rate) = $20.
25. Maximize Profits
• To maximize its profits, a firm should follow the MRP = MFC rule for
optimal factor use.
• If you recall, a firm selects its profit-maximizing output level by
applying the MR = MC rule: it continues to produce until the last
unit of output adds the same amount to total costs as it adds to
total revenue.
• A firm selects its profit-maximizing input level in much the same
way.
• It continues to add units of a variable factor to its production
process until the last unit adds as much to total costs as it adds to
total revenue.
• In other words, a firm continues to add units of a variable factor to
its production process until the marginal revenue product (MRP) of
the factor declines to equal its marginal factor cost (MFC). MRP =
MFC.
26. • If the marginal revenue product of a factor exceeds its
marginal factor cost, a firm can increase its profits by
purchasing additional units of the factor because each
additional unit will add more to total revenue than it
add to total costs.
• Conversely, if the marginal factor cost of a factor
exceeds its marginal revenue product, a firm can
increase its profit by purchasing fewer units of the
factor because each unit beyond the MRP = MFC point
is adding more to total costs than to total revenue.
27. • According to the illustration given, the market
wage rate or marginal factor cost of each unit
of labor services that Sam’s Iron works hires is
$20. If you look again at the MRP schedule for
labor given in Sam’s Iron Works schedule, if
the manager of Sam’s Iron Works wants to
maximize his profits, he should apply the
MRP=MFC rule and hire four units of labor:
MRP=$20=W=MFC at four units of labor.
28. • As you can see from Sam’s Iron Works schedule,
although the first, second, and third units of labor will
cost only $20 each, they will produce, $32, $28, and
$24 worth of iron respectively. Clearly the manager
should hire all three of these units. He should also hire
the fourth unit because the cost of hiring the fourth
unit will be no greater than the value of the iron that
the fourth unit produces. But after he has hired the
fourth unit, the manager should stop hiring because
the fifth unit will cost $20 but will produce only $16
worth of additional iron.
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