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.
The document discusses the concepts of total revenue (TR), average revenue (AR), and marginal revenue (MR) under perfect competition and monopoly market structures. It provides formulas for TR, AR, and MR and illustrates them with a table showing quantity, price, TR, AR, and MR at different output levels. Under perfect competition, TR, AR and MR are constant as output increases. The relationships between TR, AR and MR curves are also explained.
The document discusses production functions and the law of diminishing returns. It defines production as the process of combining inputs to make goods or services. There are different forms of production like job production, batch production, and mass production. The key factors of production are land, labor, capital and entrepreneurship. The Cobb-Douglas production function represents the relationship between capital, labor and output. The law of diminishing returns states that increasing one variable input while holding others constant leads to lower marginal returns after a point, as illustrated by the marginal, total and average product curves.
A firm maximizes profit by producing at the quantity where marginal revenue equals marginal cost. This occurs because:
1) Marginal revenue is the change in total revenue from selling one more unit, while marginal cost is the change in total cost from producing one more unit.
2) When marginal revenue exceeds marginal cost, the firm can increase profits by producing more units. But when marginal cost exceeds marginal revenue, profits decrease with additional production.
3) Therefore, profit is maximized at the quantity where the two margins are equal, as additional production beyond this point leads to losses rather than gains.
1. An isoquant map shows technically efficient combinations of inputs that can produce different levels of output. Isoquant curves never intersect and higher curves represent higher output levels.
2. Isoquant curves slope downward and are convex to the origin due to falling marginal rate of technical substitution. They represent combinations of two factors of production.
3. Isoquant curves differ from indifference curves, which represent satisfaction from combinations of two goods, in that isoquants measure output levels while indifference curves do not, and isoquants are influenced by technical substitution possibilities between inputs while indifference curves are influenced by marginal rates of substitution between goods.
Ram Kumar Phuyal presents on production theory and costs. He discusses production functions with one and two variable inputs and the concept of returns to scale. He explains the production function and differentiates between fixed and variable inputs. Total, average, and marginal products are defined for a single variable input. There are three stages of production as marginal product first increases, then decreases and becomes negative. Short-run costs include total fixed, variable, and total costs. Average and marginal costs are also analyzed.
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
The document discusses the concepts of total revenue (TR), average revenue (AR), and marginal revenue (MR) under perfect competition and monopoly market structures. It provides formulas for TR, AR, and MR and illustrates them with a table showing quantity, price, TR, AR, and MR at different output levels. Under perfect competition, TR, AR and MR are constant as output increases. The relationships between TR, AR and MR curves are also explained.
The document discusses production functions and the law of diminishing returns. It defines production as the process of combining inputs to make goods or services. There are different forms of production like job production, batch production, and mass production. The key factors of production are land, labor, capital and entrepreneurship. The Cobb-Douglas production function represents the relationship between capital, labor and output. The law of diminishing returns states that increasing one variable input while holding others constant leads to lower marginal returns after a point, as illustrated by the marginal, total and average product curves.
A firm maximizes profit by producing at the quantity where marginal revenue equals marginal cost. This occurs because:
1) Marginal revenue is the change in total revenue from selling one more unit, while marginal cost is the change in total cost from producing one more unit.
2) When marginal revenue exceeds marginal cost, the firm can increase profits by producing more units. But when marginal cost exceeds marginal revenue, profits decrease with additional production.
3) Therefore, profit is maximized at the quantity where the two margins are equal, as additional production beyond this point leads to losses rather than gains.
1. An isoquant map shows technically efficient combinations of inputs that can produce different levels of output. Isoquant curves never intersect and higher curves represent higher output levels.
2. Isoquant curves slope downward and are convex to the origin due to falling marginal rate of technical substitution. They represent combinations of two factors of production.
3. Isoquant curves differ from indifference curves, which represent satisfaction from combinations of two goods, in that isoquants measure output levels while indifference curves do not, and isoquants are influenced by technical substitution possibilities between inputs while indifference curves are influenced by marginal rates of substitution between goods.
Ram Kumar Phuyal presents on production theory and costs. He discusses production functions with one and two variable inputs and the concept of returns to scale. He explains the production function and differentiates between fixed and variable inputs. Total, average, and marginal products are defined for a single variable input. There are three stages of production as marginal product first increases, then decreases and becomes negative. Short-run costs include total fixed, variable, and total costs. Average and marginal costs are also analyzed.
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
The document discusses different types of costs firms face in both the short run and long run. It defines explicit costs as actual cash payments and implicit costs as opportunity costs. In the short run, some resources are fixed while others are variable. As more of the variable input is added, marginal product initially increases but eventually declines due to diminishing returns. In the long run, all inputs are variable and firms can choose different plant sizes, leading to economies or diseconomies of scale.
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
Theory of Production and Costs & Cost ConceptsAakash Singh
This document discusses theories of production and cost concepts. It defines production as the conversion of raw materials into goods and services to satisfy consumer demand. It identifies the four factors of production as land, labor, capital, and entrepreneurship. It then explains various cost concepts like fixed, variable, total, average, and marginal costs. Finally, it describes break-even analysis, including how to calculate the break-even point using graphs and equations. It shows the break-even point as the level of output where total revenue and total costs are equal.
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.
Profit maximization and perfect competitionjaveria gul
1) A firm produces at the quantity where marginal revenue equals marginal cost to maximize profits. This is the point where additional revenue from producing another unit equals the additional costs.
2) A firm's profit is maximized by producing at the output level where marginal revenue equals marginal cost. Producing more would mean marginal costs exceed marginal revenues, reducing profits.
3) In the short run, a competitive firm will produce the quantity where marginal revenue equals marginal cost to maximize profits. The firm's profit is represented by the rectangle between average total cost and marginal cost at the profit-maximizing quantity.
The document discusses the concept of profit maximization for firms. It states that firms aim to maximize profits by producing at the quantity where marginal revenue equals marginal cost. Marginal revenue is the change in total revenue from selling one more unit, while marginal cost is the change in total cost from producing one more unit. The profit-maximizing level of output occurs when marginal revenue and marginal cost are equal, as this is where profits are highest.
This document discusses different cost concepts including fixed costs, variable costs, total costs, average costs, and marginal costs. It defines each type of cost and provides examples. Fixed costs remain constant regardless of production levels, while variable costs change with output. Total costs are the sum of fixed and variable costs. Average costs are total costs divided by output. Marginal cost is the change in total cost from a one-unit change in output. The document also discusses typical total, average, and marginal cost curves and how they relate. It concludes by covering economies and diseconomies of scale.
The document discusses concepts related to cost and revenue analysis. It defines costs as expenses incurred to produce output and categorizes them as economic or accounting costs. It also discusses the differences between fixed, variable, total, average, and marginal costs in the short and long run. The document also defines revenue as the money received from sales and discusses concepts like total, average, and marginal revenue. Finally, it discusses the relationship between costs, revenue, and profit and how businesses aim to maximize profit.
The document discusses key economic concepts related to production including:
- Production is the process of transforming inputs like labor, capital, materials into outputs that are goods or services.
- The long-run production function describes the maximum output that can be produced from a set of inputs, assuming firms can adjust all input levels. It is represented mathematically as Q=F(K,L) where Q is output, K is capital, and L is labor.
- Isoquants show combinations of two inputs, like capital and labor, that produce the same level of output. The slope of an isoquant indicates how quantities of inputs can be substituted while maintaining constant output.
- Iso-cost
The document discusses theories of costs in the short run and long run for firms. In the short run, costs are classified as fixed or variable. Fixed costs do not change with output while variable costs do change with output. In the long run, nothing is fixed. Long run average cost (LRAC) curves illustrate average costs when all factors of production can be varied. LRAC curves are U-shaped and reflect economies of scale at low outputs and diseconomies of scale at high outputs. LRAC curves envelop multiple short run average cost curves as firms choose the optimal factory size.
Perfect competition is an ideal market structure where many small firms produce identical goods, there are no barriers to entry or exit, and both buyers and sellers have perfect information. Under perfect competition in the long run, firms earn zero economic profit and both allocative and productive efficiency are achieved as price equals marginal cost and firms produce at minimum average total cost.
This document discusses consumer choice and how consumption changes in response to changes in income and price. It covers:
- How an increase in income leads to an increase in consumption of normal goods but a decrease for inferior goods.
- How an increase in price leads to a decrease in quantity demanded through both substitution and income effects. These effects can be analyzed separately using compensating variations.
- The difference between normal, inferior, and Giffen goods based on whether the income or substitution effect dominates in response to a price change.
- How to construct demand curves, price-consumption curves, and Engel curves from indifference curves and budget constraints.
Fixed factors are inputs that cannot be adjusted in the short run, like capital or land, while variable factors like labor and materials can be adjusted. In the short run with at least one fixed factor, firms experience diminishing returns from adding more of a variable factor. In the long run, all factors can be adjusted, but firms are constrained by technology. Economies of scale can result in lower long-run costs as output increases due to factors like specialization and bulk purchasing. Firms aim to earn profits by setting price and output levels where total revenue exceeds total costs.
The document discusses theories of production, including:
1. It defines production function and outlines concepts like inputs, outputs, fixed vs variable inputs, and short vs long run.
2. It summarizes the law of variable proportions and returns to scale, and how they relate to costs via concepts like economies and diseconomies of scale.
3. It provides an overview of oligopoly market structure and models for price and output determination under conditions like collusion, price leadership, and kinked demand curves.
This document presents information about costs and revenues to Mr. Abdur Rab and a group of students. It defines total cost, fixed costs, and variable costs. It also defines and provides graphical representations of total cost, total variable cost, total fixed cost, marginal cost, average total cost, average variable cost, and average fixed cost. The document further discusses different types of costs, cost concepts, revenue types including total revenue, average revenue and marginal revenue, and provides graphical representations of total revenue, average revenue and marginal revenue.
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This document defines and explains isoquants. It states that an isoquant indicates various combinations of two factors of production, such as capital and labor, that produce the same level of output. It represents the substitution rate between inputs needed to maintain a given level of production. An isoquant curve shows all the possible combinations of two variable inputs that will produce the same quantity of total product.
1. The document discusses various cost concepts including opportunity cost, outlay cost, total cost, average cost, marginal cost, fixed cost, and variable cost. It explains these concepts for both the short run and long run.
2. In the short run, total cost is the sum of total fixed cost and total variable cost. Average cost and marginal cost are calculated based on changes in total cost and output.
3. In the long run, all inputs are variable and firms can change the size of their plant and operations. Long run average cost is determined by the minimum points of a series of short run average cost curves.
Cost Curves, Introduction, Types of Costs (Accounting costs, real cost, Implicit Cost, Opportunity cost, Explicit cost, Social cost, Imputed and Sunk Cost), Types of cost curves (Short run cost function, Relationship between Total Cost, Fixed Cost and Variable Cost, Costs in Long run, Conclusion.
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 different types of costs firms face in both the short run and long run. It defines explicit costs as actual cash payments and implicit costs as opportunity costs. In the short run, some resources are fixed while others are variable. As more of the variable input is added, marginal product initially increases but eventually declines due to diminishing returns. In the long run, all inputs are variable and firms can choose different plant sizes, leading to economies or diseconomies of scale.
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
Theory of Production and Costs & Cost ConceptsAakash Singh
This document discusses theories of production and cost concepts. It defines production as the conversion of raw materials into goods and services to satisfy consumer demand. It identifies the four factors of production as land, labor, capital, and entrepreneurship. It then explains various cost concepts like fixed, variable, total, average, and marginal costs. Finally, it describes break-even analysis, including how to calculate the break-even point using graphs and equations. It shows the break-even point as the level of output where total revenue and total costs are equal.
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.
Profit maximization and perfect competitionjaveria gul
1) A firm produces at the quantity where marginal revenue equals marginal cost to maximize profits. This is the point where additional revenue from producing another unit equals the additional costs.
2) A firm's profit is maximized by producing at the output level where marginal revenue equals marginal cost. Producing more would mean marginal costs exceed marginal revenues, reducing profits.
3) In the short run, a competitive firm will produce the quantity where marginal revenue equals marginal cost to maximize profits. The firm's profit is represented by the rectangle between average total cost and marginal cost at the profit-maximizing quantity.
The document discusses the concept of profit maximization for firms. It states that firms aim to maximize profits by producing at the quantity where marginal revenue equals marginal cost. Marginal revenue is the change in total revenue from selling one more unit, while marginal cost is the change in total cost from producing one more unit. The profit-maximizing level of output occurs when marginal revenue and marginal cost are equal, as this is where profits are highest.
This document discusses different cost concepts including fixed costs, variable costs, total costs, average costs, and marginal costs. It defines each type of cost and provides examples. Fixed costs remain constant regardless of production levels, while variable costs change with output. Total costs are the sum of fixed and variable costs. Average costs are total costs divided by output. Marginal cost is the change in total cost from a one-unit change in output. The document also discusses typical total, average, and marginal cost curves and how they relate. It concludes by covering economies and diseconomies of scale.
The document discusses concepts related to cost and revenue analysis. It defines costs as expenses incurred to produce output and categorizes them as economic or accounting costs. It also discusses the differences between fixed, variable, total, average, and marginal costs in the short and long run. The document also defines revenue as the money received from sales and discusses concepts like total, average, and marginal revenue. Finally, it discusses the relationship between costs, revenue, and profit and how businesses aim to maximize profit.
The document discusses key economic concepts related to production including:
- Production is the process of transforming inputs like labor, capital, materials into outputs that are goods or services.
- The long-run production function describes the maximum output that can be produced from a set of inputs, assuming firms can adjust all input levels. It is represented mathematically as Q=F(K,L) where Q is output, K is capital, and L is labor.
- Isoquants show combinations of two inputs, like capital and labor, that produce the same level of output. The slope of an isoquant indicates how quantities of inputs can be substituted while maintaining constant output.
- Iso-cost
The document discusses theories of costs in the short run and long run for firms. In the short run, costs are classified as fixed or variable. Fixed costs do not change with output while variable costs do change with output. In the long run, nothing is fixed. Long run average cost (LRAC) curves illustrate average costs when all factors of production can be varied. LRAC curves are U-shaped and reflect economies of scale at low outputs and diseconomies of scale at high outputs. LRAC curves envelop multiple short run average cost curves as firms choose the optimal factory size.
Perfect competition is an ideal market structure where many small firms produce identical goods, there are no barriers to entry or exit, and both buyers and sellers have perfect information. Under perfect competition in the long run, firms earn zero economic profit and both allocative and productive efficiency are achieved as price equals marginal cost and firms produce at minimum average total cost.
This document discusses consumer choice and how consumption changes in response to changes in income and price. It covers:
- How an increase in income leads to an increase in consumption of normal goods but a decrease for inferior goods.
- How an increase in price leads to a decrease in quantity demanded through both substitution and income effects. These effects can be analyzed separately using compensating variations.
- The difference between normal, inferior, and Giffen goods based on whether the income or substitution effect dominates in response to a price change.
- How to construct demand curves, price-consumption curves, and Engel curves from indifference curves and budget constraints.
Fixed factors are inputs that cannot be adjusted in the short run, like capital or land, while variable factors like labor and materials can be adjusted. In the short run with at least one fixed factor, firms experience diminishing returns from adding more of a variable factor. In the long run, all factors can be adjusted, but firms are constrained by technology. Economies of scale can result in lower long-run costs as output increases due to factors like specialization and bulk purchasing. Firms aim to earn profits by setting price and output levels where total revenue exceeds total costs.
The document discusses theories of production, including:
1. It defines production function and outlines concepts like inputs, outputs, fixed vs variable inputs, and short vs long run.
2. It summarizes the law of variable proportions and returns to scale, and how they relate to costs via concepts like economies and diseconomies of scale.
3. It provides an overview of oligopoly market structure and models for price and output determination under conditions like collusion, price leadership, and kinked demand curves.
This document presents information about costs and revenues to Mr. Abdur Rab and a group of students. It defines total cost, fixed costs, and variable costs. It also defines and provides graphical representations of total cost, total variable cost, total fixed cost, marginal cost, average total cost, average variable cost, and average fixed cost. The document further discusses different types of costs, cost concepts, revenue types including total revenue, average revenue and marginal revenue, and provides graphical representations of total revenue, average revenue and marginal revenue.
FellowBuddy.com is an innovative platform that brings students together to share notes, exam papers, study guides, project reports and presentation for upcoming exams.
We connect Students who have an understanding of course material with Students who need help.
Benefits:-
# Students can catch up on notes they missed because of an absence.
# Underachievers can find peer developed notes that break down lecture and study material in a way that they can understand
# Students can earn better grades, save time and study effectively
Our Vision & Mission – Simplifying Students Life
Our Belief – “The great breakthrough in your life comes when you realize it, that you can learn anything you need to learn; to accomplish any goal that you have set for yourself. This means there are no limits on what you can be, have or do.”
Like Us - https://www.facebook.com/FellowBuddycom
This document defines and explains isoquants. It states that an isoquant indicates various combinations of two factors of production, such as capital and labor, that produce the same level of output. It represents the substitution rate between inputs needed to maintain a given level of production. An isoquant curve shows all the possible combinations of two variable inputs that will produce the same quantity of total product.
1. The document discusses various cost concepts including opportunity cost, outlay cost, total cost, average cost, marginal cost, fixed cost, and variable cost. It explains these concepts for both the short run and long run.
2. In the short run, total cost is the sum of total fixed cost and total variable cost. Average cost and marginal cost are calculated based on changes in total cost and output.
3. In the long run, all inputs are variable and firms can change the size of their plant and operations. Long run average cost is determined by the minimum points of a series of short run average cost curves.
Cost Curves, Introduction, Types of Costs (Accounting costs, real cost, Implicit Cost, Opportunity cost, Explicit cost, Social cost, Imputed and Sunk Cost), Types of cost curves (Short run cost function, Relationship between Total Cost, Fixed Cost and Variable Cost, Costs in Long run, Conclusion.
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.
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.
Managerial Economics (Chapter 8 - Theory and Estimation of Cost)Nurul Shareena Misran
This document discusses the theory and estimation of cost in the short run for firms. It defines total, fixed, variable, average, and marginal costs. Total cost is the sum of fixed and variable costs. In the short run, as output increases, average fixed cost decreases while average variable and total costs initially decrease due to economies of scale but eventually increase due to diminishing returns. This results in U-shaped average total cost curves. Marginal cost intersects average costs at their minimum points. Technology improvements and input price changes can shift these cost curves. Cost functions are often modeled using cubic, quadratic, or linear equations.
The document discusses various concepts related to costs, including:
1) It defines opportunity costs and different types of explicit and implicit costs.
2) It examines costs in the short run, including total, fixed, and variable costs. It provides an example of how these costs change with output for a company.
3) It discusses the relationship between average and marginal costs.
This document discusses different types of costs that producers consider, including total, average, and marginal costs. It defines fixed costs as those that do not vary with output, and variable costs as those that do vary with output. Total costs are the sum of fixed and variable costs. The document provides examples of accounting costs, which are retrospective, versus economic costs, which consider future and opportunity costs. It also distinguishes between explicit costs, which are actual expenses, and implicit costs, which are the value of owned inputs. Finally, it outlines the components of short-run cost analysis, including formulas for average fixed cost, average variable cost, average total cost, and marginal cost.
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
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.
This document discusses cost concepts from an accounting and analytical perspective. It defines different types of costs such as fixed, variable, total, average, and marginal cost. It explains the relationship between these costs and how they change with varying levels of output in the short-run and long-run. The short-run cost curves are U-shaped while the long-run average cost curve is U-shaped, reflecting economies and diseconomies of scale. Other concepts covered include opportunity cost, sunk cost, learning curves, and economies of scope.
The document provides information about an exam format and major topics covered in a management accounting exam. It discusses the following:
- The exam format includes Section A with 40 multiple choice questions and Section B with short and long answer questions on various topics.
- Major topics covered are specialist costing techniques, decision making techniques, budgeting and control, and performance measurement.
- Key concepts discussed include responsibility centers, direct and indirect costs, cost behavior, marginal and absorption costing, and overhead allocation methods.
- Formulas sheets will be provided, and the exam covers identifying, presenting, and interpreting management accounting information for decision making, strategy, planning, and control.
This document provides an overview of key concepts related to costs, including opportunity costs, sunk costs, fixed costs, variable costs, marginal costs, average costs, and direct vs. indirect costs. It discusses cost-volume-profit analysis and the calculation of breakeven point. Examples are provided to illustrate opportunity cost decisions and the differences between various cost types. The document also summarizes accounting rules regarding product costs, period costs, and the treatment of expenses.
This document discusses various cost concepts in economics. It defines private and social costs, and explains how private costs can be measured using economic and accounting costs. Economic cost includes explicit costs like wages as well as implicit opportunity costs. The document then discusses different types of costs in the short run including total, variable, fixed, average, and marginal costs. It provides examples and graphs to illustrate cost curves and their relationships. Specifically, it explains that AVC, ATC and MC curves are U-shaped due to the law of variable proportions. The document also discusses costs in the long run and how the long run average cost curve is determined by the envelope of short run average cost curves. Finally, it discusses the learning curve concept and how
This document discusses cost analysis and contains the following key points:
1. Cost analysis is important for managers to find lower cost production methods and compete against firms with lower costs. It examines concepts like fixed, variable, average, and marginal costs.
2. Short-run and long-run cost functions are presented, showing relationships between costs and output. Economies of scale can cause long-run average costs to decline with increased output up to a point.
3. The Cobb-Douglas production function is described and used to derive long-run cost functions based on factor inputs and returns to scale. Constant, increasing, and decreasing returns to scale impact the shape of the long-run average cost curve
Cost means the amount of expenditure (actual or notional) incurred on, or attributable to, a given thing.
The Institute of Cost and Management Accountant, England (ICMA) has defined Cost Accounting as – “the process of accounting for the costs from the point at which expenditure incurred, to the establishment of its ultimate relationship with cost centers and cost units.
In its widest sense, it embraces the preparation of statistical data, the application of cost control methods and the ascertainment of the profitability of activities carried out or planned”.
This document contains an analysis of costs, market forces, and competitors for PGMAX (2014-2015). It includes sections on cost concepts, cost functions, short-run and long-run costs, economies of scale, and cost-volume-profit analysis. Market and competitor analyses cover market size, share, trends, Porter's Five Forces model, and assessing strengths and weaknesses of competitors. Break-even analysis calculations are shown for a example company.
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.
1. When business in the City of London slows down, the demand for MBA courses tends to increase as the opportunity cost of doing an MBA is reduced with falling city bonuses.
2. According to a professor at Oxford, when financial markets decline and city bonuses fall, it becomes less costly to undertake an MBA program.
3. The slowdown in business in the City of London in 2008 led to a rise in recruitment for MBA courses as the costs of doing so compared to potential bonuses were lower.
The presentation describes Elements of cost and classification, cost estimation approaches and method, break even analysis, steps and limitation with examples
Cost estimating is used to determine project costs, profitability, and productivity improvements. The top-down approach uses historical data from similar projects, while the bottom-up approach breaks costs down into small units. Costs can be categorized as fixed, variable, incremental, direct, indirect, standard, opportunity, life-cycle, cash, book, and sunk. Breakeven analysis determines the production level where total revenue equals total costs.
How to Manage Your Lost Opportunities in Odoo 17 CRMCeline George
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1. THEORY OF COST
Subject : CC03 – Managerial Economics
Class : S1 MBA (2017-19Batch)
Presented By : MUHAMMED NOWFAL
Designation : Assistant Professor
Department : Department of Management Studies
Institute : KMM College of Arts and Science – Kochi
2. LEARNING OBJECTIVES
After this chapter you learn:
• The various cost concepts
• Cost function and application of cost analysis
• Short run cost behaviour with change in one input
• Long run cost behaviour with change in two inputs
• Meaning and sources of economies of scale and diseconomies of scale
10/13/2017 Theory of Cost 2
3. COST CONCEPTS
10/13/2017 Theory of Cost 3
ACCOUNTING COST CONCEPTS ANALYTICAL COST CONCEPTS
1. Opportunity cost and actual cost
2. Business cost and full cost
3. Explicit cost and implicit cost
4. Out of pocket cost and book cost
1. Fixed and Variable cost
2. Total, Average and marginal cost
3. Short run and long run cost
4. Incremental cost and sunk cost
5. Historical and Replacement cost
6. Private and Social cost
4. COST CONCEPTS :- ACCOUNTING COST CONCEPTS
Opportunity cost and actual cost
Opportunity Cost is the expected return from the second best use of the resources
( alternative use) were forgone due to the scarcity of resources - Opportunity
cost refers to the value forgone in order to make one particular investment instead
of another.
Actual costs are those which are actually incurred by the firm in payment for the
labour, material, plant, building machinery etc. - Total money expenses recorded
in the books of accounts are for all practical purposes is actual cost
10/13/2017 Theory of Cost 4
5. COST CONCEPTS :- ACCOUNTING COST CONCEPTS
Business cost and full cost
Business cost includes all the expenses included to carry out a business – Includes
all the payments and contractual obligations made by the firm together with the
book cost of depreciation on plant and equipment
Full cost includes business cost, Opportunity cost and Normal profit – Normal
profit is necessary minimum earning in addition to the opportunity cost, that the
firm may receive to remain its present occupation
10/13/2017 Theory of Cost 5
6. COST CONCEPTS :- ACCOUNTING COST CONCEPTS
Explicit and Implicit cost (Economic Cost)
Costs that falls under actual and business cost entered in the books are called
explicit cost – For example: Wages, salaries, materials, insurance premium – these
cost involves cash payments and are recorded
There are certain cost which do not take the form of cash outlays, nor do appear in
the accounting system is called implicit cost – For example; Opportunity cost
(Implicit rent, Implicit wage)
10/13/2017 Theory of Cost 6
7. COST CONCEPTS :- ACCOUNTING COST CONCEPTS
Out of Pocket and Book Cost
The items of expenditure which involves cash payments including both recurring
and non recurring expenses are called out of pocket costs
There are some actual cost which do not involve cash payements, but a provision
is made in the books of accounts are known as book cost – example payment
made by the firm to itself
10/13/2017 Theory of Cost 7
8. COST CONCEPTS – ANALYTICAL COST CONCEPTS
Fixed and Variable costs
Fixed costs are those which remain fixed in volume over a certain level of output
– it do not vary with variation of output for certain level of output – Example; cost
of managerial and administrative staff
Variable cost are those which vary with the variation in output – cost of raw
material, running cost of fixed capital i.e. Fuel, Power
10/13/2017 Theory of Cost 8
9. COST CONCEPTS – ANALYTICAL COST CONCEPTS
Total, Average and Marginal cost
Total cost is the total expenditure incurred on the production of goods and services – it
includes both total fixed cost and total variable cost
TC = TFC + TVC
Average cost is of statistical nature – it is not an actual cost – it is obtained by dividing
the total cost by the total output
AC = TC / Q
Marginal cost is the addition to the total cost on producing one additional unit of product
MC = TCn – TCn-1
10/13/2017 Theory of Cost 9
10. COST CONCEPTS – ANALYTICAL COST CONCEPTS
Short run and Long run costs
Short run costs are those which has short run implications in the production
process and vary with variation in output – Variable cost
Long run costs are the cost which incurred on the fixed assets – Fixed costs
Short run costs are those associated with variables in the utilization of fixed plant
and other facilities and long run cost are associated with the changes in the size
and kind of plant
10/13/2017 Theory of Cost 10
11. COST CONCEPTS – ANALYTICAL COST CONCEPTS
Incremental cost and sunk costs
Incremental cost is the total additional cost associated with the decision to expand
the output or to add a new variety of product
Sunk costs are those which are incurred once for all – such cost cannot be altered,
increased or decreased by varying the rate of output
10/13/2017 Theory of Cost 11
12. COST CONCEPTS – ANALYTICAL COST CONCEPTS
Historical and Replacement cost
• Historical cost is the cost of the assent acquired in the past where as replacement
cost is the expenditure made for replacing and old asset
10/13/2017 Theory of Cost 12
13. COST CONCEPTS – ANALYTICAL COST CONCEPTS
Private cost and social cost
• Costs paid out or provided for by the firms (for purchase of good and services
from the market) is called private cost
• Cost not paid or born by the firms including the use of resources freely available
in the process of production is social cost – total cost born by the society due to
production of commodity
10/13/2017 Theory of Cost 13
14. COST FUNCTION
• Symbolic statement of the technological relationship between cost and
output
• Total cost function is expressed as TC = f(Q)
• This form tells only that there is a relationship between TC and output – but it
does not tell the nature of relationship – Since there is a positive relationship
between TC and output, the cost function may be written as
TC = f (Q), ∆𝑻𝑪/∆𝑸 > 𝟎
10/13/2017 Theory of Cost 14
15. SHORT RUN COST FUNCTIONS AND COST CURVES
The cost output relationships are determined by the cost function and are exhibited
through cost curves
The shape of cost curves depends on the nature of the cost function
Cost function is derived from the actual cost data of the firms
Estimated cost function may take a variety of forms, yielding different kind of cost
curves such as
Linear cost function
Quadratic cost function and
Cubic cost function
10/13/2017 Theory of Cost 15
16. LINEAR COST FUNCTIONS
Linear cost function expressed as
Where as a = TFC and b=
𝜕𝑇𝐶
𝜕𝑄
Given the cost function AC and MC cab obtained as follows
10/13/2017 Theory of Cost 16
𝑨𝑪 =
𝑻𝑪
𝑸
= 𝒂 +
𝒃𝑸
𝑸
=
𝒂
𝑸
+ 𝒃 𝑴𝑪 =
𝝏𝑻𝑪
𝝏𝑸
= 𝑏
𝑻𝑪 = 𝒂 + 𝒃𝑸
17. LINEAR COST FUNCTIONS
• Assuming the cost function TC= a+bQ
10/13/2017 Theory of Cost 17
Behavior of AC and MC
MC is constant in this case
AC continuous to decline with the
increase in output
18. QUADRATIC COST FUNCTION
• A quadratic cost function is of the form
Where as a and b are constant
• Given the cost function AC and MC can be obtained as
10/13/2017 Theory of Cost 18
𝑻𝑪 = 𝒂 + 𝒃𝑸 + 𝑸 𝟐
𝑨𝑪 =
𝑻𝑪
𝑸
=
𝒂+𝒃𝑸+𝑸 𝟐
𝑸
=
𝒂
𝑸
+ 𝒃 + 𝑸 𝑀𝐶 =
𝜕𝑇𝐶
𝜕𝑄
= 𝑏 + 2𝑄
19. QUADRATIC COST FUNCTION
Given the cost function TC = a + bQ + Q2
10/13/2017 Theory of Cost 19
TFC remains constant
TVC increasing at an
increasing rate
21. CUBIC COST FUNCTION
• The cubic cost function is of the form
10/13/2017 Theory of Cost 21
𝑻𝑪 = 𝒂 + 𝒃𝑸 − 𝒄𝑸 𝟐
+ 𝑸 𝟑
AC =
𝐓𝐂
𝐐
=
𝒂+𝒃𝑸+𝒄𝑸 𝟐+𝑸 𝟑
𝑸
𝑴𝑪 =
𝝏𝑻𝑪
𝝏𝑸
= 𝒃 − 𝟐𝒄𝑸 + 𝟑𝑸 𝟐
25. AC, AFC, AVC and MC Curves
10/13/2017 Theory of Cost 25
26. • ATC keeps going down with output.
• AVC goes down and then beyond a point starts rising.
• AFC keeps going down, and becomes very small as output increases.
• MC goes down but beyond a point starts to rise.
10/13/2017 Theory of Cost 26
27. SOME IMPORTANT RELATIONSHIPS
• Over a range of output both AVC and AFC fall, AC also falls because AC =AFC +
AVC
• When AFC falls but AVC increases, change in AC depends on the change in AFC and
AVC
• If decrease in AFC > increase in AVC, then AC falls
• If decrease in AFC = increase in AVC, then AC remains constant
• If decrease in AFC < increase in AVC, then AC increases
• When MC falls, AC follows over a certain level of output. When MC falling, the rate
of fall in MC in greater than that of AC i.e. AC decreases at a rate lower than MC
10/13/2017 Theory of Cost 27
28. LONG RUN COST CURVES
Long run Total Cost Curve :
• Long run Total Cost (LTC) refers to the minimum cost at which given level of output
can be produced.
• LTC represents the least cost of different quantities of output. LTC is always less than
or equal to short run total cost, but it is never more than short run cost.
10/13/2017 Theory of Cost 28
29. LONG RUN COST CURVES
Long run Average Cost Curve
• Long run Average Cost (LAC) is equal to long run total costs divided by the level of
output.
• The derivation of long run average costs is done from the short run average cost
curves.
10/13/2017 Theory of Cost 29
30. LONG RUN COST CURVES
Long run Marginal Cost Curve
Long run Marginal Cost (LMC) is defined as added cost of producing an additional
unit of a commodity when all inputs are variable.
This cost is derived from short run marginal cost.
On the graph, the LMC is derived from the points of tangency between LAC and
SAC.
10/13/2017 Theory of Cost 30
32. REFERENCES
• D N Dwiledhi, Essentials of business economics, Vikas publishing house Pvt Ltd,
New Delhi, 2009
• D.M. Mithani,Managerial Economics, 5/e, Himalaya Publishing
House,Mumbai,2011
• Yogesh, Maheswari, Management Economics,PHI Learnings, New
PHIlearning,NewDelhi,2012
10/13/2017 Theory of Cost 32
33. THANK YOU
MUHAMMED NOWFAL.S
Assistant Professor, Department of Management studies
KMM College of Arts and Science, Thrikkara, Kochi
Email ID :- muhammednowfal@kcmtcochin.com
10/13/2017 Theory of Cost 33