cost concept in economics
DESCRIPTION
Concepts of COst in economics . Economics conceptsTRANSCRIPT
![Page 1: Cost concept in economics](https://reader033.vdocuments.net/reader033/viewer/2022051514/54827cd85806b5fc048b469b/html5/thumbnails/1.jpg)
1
Coaching for CS in Ludhiana
Contact : 7837-220-750studease.in
![Page 2: Cost concept in economics](https://reader033.vdocuments.net/reader033/viewer/2022051514/54827cd85806b5fc048b469b/html5/thumbnails/2.jpg)
2
Cost Concepts in
Economics
![Page 3: Cost concept in economics](https://reader033.vdocuments.net/reader033/viewer/2022051514/54827cd85806b5fc048b469b/html5/thumbnails/3.jpg)
3
Cost Classification
Fixed or variable Cash or non-cash Accounting expense or not Opportunity costs
![Page 4: Cost concept in economics](https://reader033.vdocuments.net/reader033/viewer/2022051514/54827cd85806b5fc048b469b/html5/thumbnails/4.jpg)
4
Opportunity Costs
Not an accounting expense Every input has an alternative use OC is the value of a product not
produced because input was used for another purpose
OC is income that would have been received if input had not been used in its most profitable alternative use
![Page 5: Cost concept in economics](https://reader033.vdocuments.net/reader033/viewer/2022051514/54827cd85806b5fc048b469b/html5/thumbnails/5.jpg)
5
Short-run and Long-run Costs
Short-run = time period when one or more inputs are fixed
Long-run = time period when all inputs can be changed (none are fixed)
![Page 6: Cost concept in economics](https://reader033.vdocuments.net/reader033/viewer/2022051514/54827cd85806b5fc048b469b/html5/thumbnails/6.jpg)
6
Fixed Costs
Costs associated with owning a fixed input or resource
Do not change as level of production changes
Incurred even if no input is used Not under control of the manager in the
short-run Present in the short-run only
![Page 7: Cost concept in economics](https://reader033.vdocuments.net/reader033/viewer/2022051514/54827cd85806b5fc048b469b/html5/thumbnails/7.jpg)
7
DIRTI 5
Depreciation =lifeUseful
valueSalvageCost
![Page 8: Cost concept in economics](https://reader033.vdocuments.net/reader033/viewer/2022051514/54827cd85806b5fc048b469b/html5/thumbnails/8.jpg)
8
DIRTI 5
Depreciation =
Interest =
lifeUseful
valueSalvageCost
rateInterestvalueSalvageCost
2
![Page 9: Cost concept in economics](https://reader033.vdocuments.net/reader033/viewer/2022051514/54827cd85806b5fc048b469b/html5/thumbnails/9.jpg)
9
DIRTI 5
Depreciation =
Interest =
Repairs Taxes Insurance
lifeUseful
valueSalvageCost
rateInterestvalueSalvageCost
2
![Page 10: Cost concept in economics](https://reader033.vdocuments.net/reader033/viewer/2022051514/54827cd85806b5fc048b469b/html5/thumbnails/10.jpg)
10
DITI 4
Depreciation =
Interest =
Taxes Insurance
lifeUseful
valueSalvageCost
rateInterestvalueSalvageCost
2
![Page 11: Cost concept in economics](https://reader033.vdocuments.net/reader033/viewer/2022051514/54827cd85806b5fc048b469b/html5/thumbnails/11.jpg)
11
Example of Fixed Costs
Purchase a pickup for R20,000 Salvage value of R5,000 Useful life of 5 years Interest rate of 10% Taxes are R25 / year Insurance is R1,000 / year
![Page 12: Cost concept in economics](https://reader033.vdocuments.net/reader033/viewer/2022051514/54827cd85806b5fc048b469b/html5/thumbnails/12.jpg)
12
Variable Costs
Those costs that the manager has control over in a given period of time
Can be increased or decreased at the manager’s discretion
Feed, seeds, fertilizer, etc
![Page 13: Cost concept in economics](https://reader033.vdocuments.net/reader033/viewer/2022051514/54827cd85806b5fc048b469b/html5/thumbnails/13.jpg)
13
Total and Average Costs Total costs = TVC + TFC Average Variable Costs (AVC)
= TVC / Output level Average Fixed Costs (AFC)
= TFC / Output level Average Total Costs (ATC)
= TC / Output level
= AVC + AFC
![Page 14: Cost concept in economics](https://reader033.vdocuments.net/reader033/viewer/2022051514/54827cd85806b5fc048b469b/html5/thumbnails/14.jpg)
14
Marginal Costs
Cost associated with a change in the output
What did it cost for the last unit of increased output?
MC = Output
TC
![Page 15: Cost concept in economics](https://reader033.vdocuments.net/reader033/viewer/2022051514/54827cd85806b5fc048b469b/html5/thumbnails/15.jpg)
15
Typical Total Cost Curves
TVC
TC
TFC
Output
R
![Page 16: Cost concept in economics](https://reader033.vdocuments.net/reader033/viewer/2022051514/54827cd85806b5fc048b469b/html5/thumbnails/16.jpg)
16
Average and MarginalCost Curves
Output
RMC ATC
AVC
AFC
![Page 17: Cost concept in economics](https://reader033.vdocuments.net/reader033/viewer/2022051514/54827cd85806b5fc048b469b/html5/thumbnails/17.jpg)
17
Stocking Rate Problem TFC = R4000VC = R395 / steer Selling price = R70 / cwt
Runs Outputcwt APP MPP TFC TVC TC AFC AVC ATC MC MR
0 0 4,000 0 4,00054.9 70
10 72 7.2 7.2 4,000 3,950 7,950 55.6 54.9 110.452.0 70
20 148 7.4 7.6 4,000 7,900 11,900 27.0 53.4 80.451.3 70
30 225 7.5 7.7 4,000 11,850 15,850 17.8 52.7 70.456.4 70
40 295 7.4 7.0 4,000 15,800 19,800 13.6 53.6 67.160.8 70
50 360 7.2 6.5 4,000 19,750 23,750 11.1 54.9 66.065.8 70
60 420 7.0 6.0 4,000 23,700 27,700 9.5 56.4 66.071.8 70
70 475 6.8 5.5 4,000 27,650 31,650 8.4 58.2 66.679.0 70
80 525 6.6 5.0 4,000 31,600 35,600 7.6 60.2 67.887.8 70
90 570 6.3 4.5 4,000 35,550 39,550 7.0 62.4 69.498.8 70
100 610 6.1 4.0 4,000 39,500 43,500 6.6 64.8 71.3
![Page 18: Cost concept in economics](https://reader033.vdocuments.net/reader033/viewer/2022051514/54827cd85806b5fc048b469b/html5/thumbnails/18.jpg)
18
Stocking Rate Problem TFC = R4000VC = R395 / Run Selling price = R70 / cwt
Runs Outputcwt APP MPP TFC TVC TC AFC AVC ATC MC MR
0 0 4,000 0 4,00054.9 70
10 72 7.2 7.2 4,000 3,950 7,950 55.6 54.9 110.452.0 70
20 148 7.4 7.6 4,000 7,900 11,900 27.0 53.4 80.451.3 70
30 225 7.5 7.7 4,000 11,850 15,850 17.8 52.7 70.456.4 70
40 295 7.4 7.0 4,000 15,800 19,800 13.6 53.6 67.160.8 70
50 360 7.2 6.5 4,000 19,750 23,750 11.1 54.9 66.065.8 70
60 420 7.0 6.0 4,000 23,700 27,700 9.5 56.4 66.071.8 70
70 475 6.8 5.5 4,000 27,650 31,650 8.4 58.2 66.679.0 70
80 525 6.6 5.0 4,000 31,600 35,600 7.6 60.2 67.887.8 70
90 570 6.3 4.5 4,000 35,550 39,550 7.0 62.4 69.498.8 70
100 610 6.1 4.0 4,000 39,500 43,500 6.6 64.8 71.3
![Page 19: Cost concept in economics](https://reader033.vdocuments.net/reader033/viewer/2022051514/54827cd85806b5fc048b469b/html5/thumbnails/19.jpg)
19
Production Rules
Short-run SP > ATC
Produce where MR=MC
ATC > SP > AVC Making contribution to FC Produce where MR=MC
SP < AVC Do not produce
Long-run SP > ATC
Produce where MR=MC
SP < ATC Do not produce
![Page 20: Cost concept in economics](https://reader033.vdocuments.net/reader033/viewer/2022051514/54827cd85806b5fc048b469b/html5/thumbnails/20.jpg)
20
Cost Concepts in EconomicsSummary
Cost Classification Opportunity costs Fixed, Variable, and Marginal costs
DITI 4 Average total, fixed, and variable costs Marginal costs
Cost Curves Production rules
![Page 21: Cost concept in economics](https://reader033.vdocuments.net/reader033/viewer/2022051514/54827cd85806b5fc048b469b/html5/thumbnails/21.jpg)
21
Cost Concepts in Economics
E N D
![Page 22: Cost concept in economics](https://reader033.vdocuments.net/reader033/viewer/2022051514/54827cd85806b5fc048b469b/html5/thumbnails/22.jpg)
22