cost concepts

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SMT. CHANDHIBAI HIMATMAL MANSUKHANI COLLEGE
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PRESENTED BY

• LAVINA KHATRI -
  29
• VINAY ARTWANI(GROUP LEADER) - 30
• HITESH KUKREJA -
  31
• HARSHA MATTA -
  32

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Cost CONCEPTS IN ECONOMICS
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AGENDA

• 1.Cost
• 2.Types Of Cost
• 3.Cost Concept
• 4.Cost Curves
• 5.Types Of Cost Curves
• 6.Short-Run And Long-Run
• Decision Making
• 7.Example of cost concept

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1.costs

• 1.Influential factor on the supply side.
• 2.Expenditure incurred for various factors of
  production.
• E.g land,labour,capital,etc.
• 3.Renumeration paid to the factors of production
  for their services.

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2.TYPES OF COSTS

• 1.VARIABLE COSTS
• These Costs Exist Only If Production Occurs.
• E.G- Fuel For Tractor, Seed, Etc.
• 2.FIXED COSTS
• These Cost Exist Whether Production Occurs Or
  Not.
• In The Long-Run There Are No Fixed Costs.
• Can Be Both Cash And Non-Cash Expenses.
• E.G- Depreciation On Tractors And Buildings,
  Etc.

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3.COST CONCEPTS

• 1.Real costs
• (It refers to the actual quantities of various
  factors used in producing a commodity.
• E.g. the real cost of producing a chair is the
  amount of wood,nails,carpenters labour.)
• 2.Money cost
• (It is the cost of production expressed in
  terms of money. It is the money spent on various
  resources used in the production process.)

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3.COST CONCEPTS

• Implicit cost
• (It is the cost incurred by the business firms
  on the factors of production owned by it.
• E.g. own land rented to somebody and rent used
  for cost of production.)

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COST CONCEPTS(?)

• IT IS USED TO ANALYZE TWO THINGS
• 1.SHORT-RUN
• 2.LONG-RUN

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WHAT ARE COST CURVES ?

• 4.COST CURVES
• 1.Cost Curve Is A Graph Of Cost
  Of
• Production
• 2. Determines Profit
• 3. Basic Categories-
• (A) Total cost Curves
• (B) Average cost curves

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5.Types of COST CURVES

• Total Fixed Costs (TFC)
• Total Variable Cost (TVC)
• Total Cost (TCTFCTVC)
• Average Fixed Costs (AFC)
• Average Variable Cost (AVC)
• Average Total Cost (ATCAFCAVC)
• Marginal Cost (MC)

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Typical Total Cost Curves

TC
TVC
TFC
Output
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Average and MarginalCost Curves

ATC
MC
AVC
AFC
Output
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6.Short-Run Decision Making

• There Are Many Ways To Choose How To Produce.
• Profit Maximization
• (Profit TR TC.)
• Production Level MR MC When MR gt AVC In The
  Short-Run
• If MR ? AVC, we would have to shut down
• Why?
• MR MC, we want to produce at a level where MR
  is as close as possible to MC, where MR gt MC.

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6.LONG-RUN DECISION MAKING

• Course of action.
• Numerous aspects of the short run.
• Envelope Curve.
• Tangent curve.
• Long run planning device.
• Minimum cost combinations of inputs.

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6.LONG-RUN AVERAGE COST
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7.Example of Cost Concepts
Y
TFC
TVC
AFC
AVC
ATC
MC
TC
X
1000 1600 2000 2200 2600 3200 4000 5000 6200 7600
10 30 48 65 81 96 108 116 120 117
1000 1000 1000 1000 1000 1000 1000 1000 1000 1000
2000 2600 3000 3200 3600 4200 5000 6000 7200 8600
100 33.33 20.83 15.38 12.35 10.42 9.26 8.62 8.33 8
.55
100 53.33 41.67 33.85 32.10 33.33 37.04 43.10 51.6
7 64.96
200 86.67 62.50 49.23 45.45 43.75 46.30 51.72 60.0
0 73.51
30 22.22 11.76 25 40 66.67 125 300 -466.67
10 16 20 22 26 32 40 50 62 76
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Typical Total Cost Curves

TC
TVC
TFC
Output
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Average and MarginalCost Curves

ATC
MC
AVC
AFC
Output
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CONCLUSION

• In this manner, We gathered knowledge regarding
  cost, cost concept, cost curves in detail. In
  short,
• Cost is expenditure incurred for various factors
  of production.
• Cost concept is used to analyze two things
• (a) short-run decision making.
• (b) long-run decision making.
• Cost curve is a graph of cost of production which
  helps to determine profit.