Total cost 2007
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The document defines key cost terms for a business: - Total cost is the sum of total fixed cost and total variable cost, and increases with output while fixed cost stays constant. - Average cost is total cost divided by units of output and is also called average total cost. - Marginal cost is the addition to total cost for each extra unit of output produced. - The learning curve shows that as a firm's output increases over time, the cost per unit decreases as the firm learns efficiencies in production.
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This document provides an overview of cost theory concepts. It defines different types of costs including opportunity costs, explicit costs, and implicit costs. It also discusses costs in the short run vs long run. Key cost concepts explained include total costs, fixed costs, variable costs, average costs, and marginal costs. Graphs are provided to illustrate the relationships between costs and output, including total cost curves, average cost curves, and how marginal costs change with diminishing returns.
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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.
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The document discusses various cost concepts including:
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The document discusses concepts of costs including:
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•Determinants of short run cost
•Diminishing marginal returns
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This document summarizes different types of costs including total, fixed, variable, average, and marginal costs. It defines each type of cost using mathematical formulas. Total cost is the sum of total fixed cost and total variable cost. As production increases, average fixed cost decreases forming a rectangular hyperbola shape. Average variable cost is total variable cost divided by units of output. Average cost is total cost divided by units of output. Marginal cost is the change in total cost from producing one additional unit and the marginal cost curve is U-shaped.
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The document discusses the costs of production for firms. It defines different types of costs including fixed costs, variable costs, total costs, average costs, and marginal costs. Fixed costs remain constant regardless of the amount of output, while variable costs change with output. Total cost is the sum of fixed and variable costs. The document also discusses how cost curves like total cost, average cost, and marginal cost shift when costs or technology change.
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This document discusses cost concepts and types of costs. It defines explicit costs as actual money expenditures paid to outsiders, and implicit costs as the estimated value of owner-supplied inputs including normal profit. Cost is a function of output, and types of costs include total fixed costs, total variable costs, total costs, average fixed costs, average variable costs, average costs, and marginal costs. Long-run costs are all variable as all factors are variable. Economies of scale provide cost advantages from expansion, including pecuniary and real economies, while internal economies come from changes within the firm and external economies from changes outside the firm like government policies.
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This document discusses key concepts related to business costs including:
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Here are the steps to solve this example:
1. Estimate the total cost function:
TC = a + bQ + cQ^2
2. Take the first derivative of the total cost function to get the average cost function:
AC = b + 2cQ
3. Take the first derivative of the average cost function and set equal to 0 to minimize AC:
b + 2cQ = 0
Q = -b/2c
4. Plug back into the average cost function to get the minimum AC.
5. Compare minimum AC to market price to determine if production should continue.
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Okay, let me break this down step-by-step:
* Explicit costs:
** Labor costs: $12,000
** Rent: $5,000
** Materials: $20,000
* Total explicit costs = $12,000 + $5,000 + $20,000 = $37,000
* Implicit costs:
** Opportunity cost of capital = $4,000
** Mooez's salary as potter = $15,000
** Value of Mooez's entrepreneurial talents = $3,000
* Total implicit costs = $4,000 + $15,000 + $3,000 = $22,000
* Total costs
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There are two types of economic costs: explicit costs which are actual expenditures and implicit costs which are the value of factors owned by the firm. Short-run costs include fixed costs which do not vary with output and variable costs which do vary with output. Total cost is the sum of fixed and variable costs. Marginal cost is the change in total cost from producing one additional unit of output. Average costs include average fixed cost, average variable cost, and average total cost.
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Total cost 2007
- 1. TOTAL COST • Total cost of a business firm is the sum of its Total Variable Cost & Total Fixed Cost. T.C. = T.F.C. + T.V.C. where, T.C. = Total Cost T.F.C. = Total Fixed Cost T.V.C. = Total Variable Cost • The Total Cost of the firm increases with increase in output & so does the T.V.C. But the T.F.C. remains constant whatever may be the output.
- 3. AVERAGE COST • Average cost is the cost per unit of output produced by a firm. It is the Total cost divided by the no: of units of output produced. A.C. = T.C./Q where, A.C. = Average Cost T.C. = Total Cost Q = no: of units of output • A.C. Is also known as Average Total Cost(A.T.C.) A.T.C. = A.F.C. + A.V.C. where, A.T.C. = Average Total Cost A.F.C. = Average Fixed Cost A.V.C. = Average Variable Cost
- 5. MARGINAL COST • Marginal Cost is the additional cost which is made to the total cost for the production of one more unit of output. • In other words M.C. Is an addition to the T.C. Of producing (n) units instead of (n-1). M.C. = T.C.n – T.C.(n-1) • It can also be written as, M.C. = ∆T.C. / ∆Q where, ∆T.C. = change in total cost ∆Q = change in quantity demand
- 7. LEARNING CURVE The learning curve has a downward slope indicating that the aggregate amount of output produced of a commodity by a firm increases over time but the cost per unit goes on decreasing. This is because with greater production a firm learns to produce the commodity more efficiently & therefore the cost per unit declines. It is always seen to be a ‘L’ shaped curve.