COST CURVES OR COST CONCEPTS IN ECONOMICS

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Cost CONCEPTS IN ECONOMICS : 

Cost CONCEPTS IN ECONOMICS

AGENDA : 

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

1.costs : 

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.

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. 2.TYPES OF COSTS

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.) 3.COST CONCEPTS

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.) 3.COST CONCEPTS

WHAT ARE COST CURVES ? : 

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

5.Types of COST CURVES : 

5.Types of COST CURVES Total Fixed Costs (TFC) Total Variable Cost (TVC) Total Cost (TC=TFC+TVC) Average Fixed Costs (AFC) Average Variable Cost (AVC) Average Total Cost (ATC=AFC+AVC) Marginal Cost (MC)

Typical Total Cost Curves : 

Typical Total Cost Curves TVC TC TFC Output $

Average and MarginalCost Curves : 

Average and MarginalCost Curves Output $ MC ATC AVC AFC

COST CONCEPTS() : 

COST CONCEPTS() IT IS USED TO ANALYZE TWO THINGS 1.SHORT-RUN 2.LONG-RUN

6.Short-Run Decision Making : 

6.Short-Run Decision Making In The Short Run,There Are Many Ways To Choose How To Produce. Profit Maximization (Profit () is defined as total revenue minus total cost, i.e.,  = TR – TC.) While Examining Output, We have To Set Our Production Level Where MR = MC When MR > AVC In The Short-Run

6.Short-Run Decision Making : 

6.Short-Run Decision Making If MR  AVC, we would have to shut down Why? If we can not set MR exactly equal to MC, we want to produce at a level where MR is as close as possible to MC, where MR > MC.

7.Example of Cost Concepts : 

7.Example of Cost Concepts Y TFC TVC TC AFC AVC ATC MC 10 30 48 65 81 96 108 116 120 117 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1600 2000 2200 2600 3200 4000 5000 6200 7600 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 51.67 64.96 200 86.67 62.50 49.23 45.45 43.75 46.30 51.72 60.00 73.51 30 22.22 11.76 25 40 66.67 125 300 -466.67 X 10 16 20 22 26 32 40 50 62 76