This document discusses different types of costs related to production. It defines money cost, nominal cost, real cost, opportunity cost, implicit cost, explicit cost, accounting cost, social cost, and entrepreneur's cost. It also covers classification of costs, elements of costs, short-run costs including fixed, variable, total, average and marginal costs. Finally, it discusses long-run cost curves including long-run average cost and long-run marginal cost curves.

1. O F
Y
R T
O S
E O
T H C

2. COST
 It is the firm of the individual
operating in a marketing has a
influence on the market supply of the
commodity.
 In order to make use of the various
factor and non-factor inputs.
 In common, the amount spend on these
inputs is called the cost of production.

3. CONCEPT OF COST
 MONEY COST :
The amount spend in terms of money for
the production of the commodity is known as
money cost .
 NOMINAL COST:
It is the money cost of production.
 REAL COST :
It is the mental and physical and sacrifices
undergone with a view to producing a
commodity .

4.  OPPORTUNITY COST :
The real concept of production of
given commodity is the next best alternative
sacrificed in order to obtain that
commodity.

5.  IMPLICIT COST :
It is the cost of self-owned resources
such as salary of proprietor.
 EXPLICIT COST :
* It is the paid-out cost.
* It means payments made for the
productive resources purchased.

6.  ACCOUNTING OR BUSINESS COST:
Cash payments which firms make for factor and
non-factor input depreciation other book keeping entries.
• SOCIAL COST:
It is the amount of cost the society bears due to
industrialization.
• ENTREPRENEUR’S COST:
The cost of production in the sense of money cost or
expenses of production.

7. CLASSIFICATION OF
ENTREPREUNER’S COST
 PRODUTION COST.
 SELLING COST.
 OTHER COST.
 MANAGERIAL COST.

8. ELEMENTS
 WAGES.
 INTEREST.
 RENT.
 COST OF RAW MATERIALS.
 REPLACEMENT AND REPAIRING.
 DEPRICIATION.
 PROFITS.

9. SHORT-RUN COSTS
 In the short run atleast one factor of
production is fixed.
 Output can be varied only by adding
more variable factors.

10.  PRIME COSTS:
Some costs vary more
proportionately with the output,while others
are fixed and do not vary output in the same
way.
 SUPPLEMENTARY COSTS:
Some costs vary less
proportionately with the output,while others
are fixed and do not vary output in the same
way.

11. FIXED COST
 Remains constant.
 Also known as short-run cost.
 This cost includes:
*Cost on managerial staff.
*Expenditure on depeciation.
*Maintenance cost of the factory.

12. VARIABLE COST
 Vary directly with the level of output
 Used in the actual production process.
 Functions of output changes.
 Eg: Cost of raw-materials.
Cost in direct labour.

13.  TOTAL COST:
Sum of total fixed cost and total
variable cost.
TC=TVC+TFC.
TVC=0, when the output is zero and
increases with increase in the output.

14. AVERAGE COST
 They are of three types.
*Average fixed cost.
*Average variable cost.
*Average total cost.

15. AVERAGE FIXED COST:
 It is the per-unit cost of the fixed
factors.
 AFC=TFC/Q.
AVERAGE VARIABLE COST:
 It is the per-unit cost of the variable
factors.
 AVC=TVC/Q.

16. AVERAGE
TOTAL COST
* It is the total cost divided by the number
of units produced.
* Sum of average fixed cost and average
variable cost.
ATC=TC/Q.
AC=AFC+AVC.

17. CHANGES IN
VARIABLE COST

18. CHANGE IN FIXED
COST-NO EFFECT

19.  MARGINAL COST:
Change in the the total cost
resulting from the unit change in the
quantity produced.
MC=Change in Q/Change in
TC.

20. SHORT RUN COSTS
OF PRODUCTION

21. LONG-RUN COST
CURVES
 It is a period of time during which
the quantities of all factors,variable
as well as fixed can be adjusted.

22.  LONG-RUN AVERAGE COST
CURVE:
Slopes downwards.
 Larger scope of specialization of
labour.
 Increasing use of specialized
machinery.
 Other technological management.

23.  LONG-RUN MARGINAL COST
CURVE:
Cuts the LRAC at the lowest point.
It is equal to the LRAC when LAC
is neither rising nor falling.

24. ANKU
TH