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    Presentation ON COST : By:-Alok Madhav

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    Alok Madhav
    The document provides an overview of cost concepts for managers. It defines cost as the money incurred in the production of goods, including all expenditures. It then discusses different types of costs such as opportunity cost, real cost, accounting cost, money cost, social cost, private cost, implicit cost, explicit cost, short-run cost, long-run cost, incremental cost, and sunk cost. The document then discusses theories of cost, including traditional short-run and long-run cost curves. It explains total cost, fixed cost, and variable cost curves. It also defines average costs such as average fixed cost, average variable cost, and average total cost. Finally, it discusses marginal cost as the change in total cost

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    Presentation ON COST : By:-Alok Madhav

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    Alok Madhav
    30 views16 pages
    The document provides an overview of cost concepts for managers. It defines cost as the money incurred in the production of goods, including all expenditures. It then discusses different types of costs such as opportunity cost, real cost, accounting cost, money cost, social cost, private cost, implicit cost, explicit cost, short-run cost, long-run cost, incremental cost, and sunk cost. The document then discusses theories of cost, including traditional short-run and long-run cost curves. It explains total cost, fixed cost, and variable cost curves. It also defines average costs such as average fixed cost, average variable cost, and average total cost. Finally, it discusses marginal cost as the change in total cost

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    The document provides an overview of cost concepts for managers. It defines cost as the money incurred in the production of goods, including all expenditures. It then discusses different types of costs such as opportunity cost, real cost, accounting cost, money cost, social cost, private cost, implicit cost, explicit cost, short-run cost, long-run cost, incremental cost, and sunk cost. The document then discusses theories of cost, including traditional short-run and long-run cost curves. It explains total cost, fixed cost, and variable cost curves. It also defines average costs such as average fixed cost, average variable cost, and average total cost. Finally, it discusses marginal cost as the change in total cost

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    30 views16 pages

    Presentation ON COST : By:-Alok Madhav

    Uploaded by

    Alok Madhav
    The document provides an overview of cost concepts for managers. It defines cost as the money incurred in the production of goods, including all expenditures. It then discusses different types of costs such as opportunity cost, real cost, accounting cost, money cost, social cost, private cost, implicit cost, explicit cost, short-run cost, long-run cost, incremental cost, and sunk cost. The document then discusses theories of cost, including traditional short-run and long-run cost curves. It explains total cost, fixed cost, and variable cost curves. It also defines average costs such as average fixed cost, average variable cost, and average total cost. Finally, it discusses marginal cost as the change in total cost

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 16

    ECONOMICS FOR MANAGERS

    PRESENTATION ON COST

    BY:- ALOK MADHAV

    COST
    

     

    Money incurred in the production of any product i.e. transforming raw material into finished goods is termed as COST. Cost include every expenditure done while production. Cost varies with the level of output.

    Concept of Cost
    

    Opportunity cost :- Opportunity cost of any good is the next best alternative that can be produced instead of this good. Cost of producing any quantity of good is the quantity of the next best alternative that can be produce instead.

    Real cost :- It refers to the effort and sacrifices made by the employees in the production of a commodity. It is the pain, discomfort, physical & mental effort in doing work.

    CONT..
    

    Accounting cost :- Cost incurred in the maintainance of books of accounts. Like cost of hiring a accountant. Money cost :- The money involved in manufacturing any unit. Social cost :- The cost which the society bears. Like waste of the chemical factory. Private cost :- It refers to cost of production incurred by an individual firm in producing a commodity.

    CONT..
    

    Implicit cost :- It refers to the estimated value of the inputs owned by the firm and used by it in its own production unit. e.g. owners own land & building. Explicit cost :- Money payment made by the firm to the owners of various factor services in purchasing and hiring the factors services required in the production of the unit is called Explicit cost. Short run cost and Long run cost :- Cost which involve both fixed cost and variable cost. Cost incurred by the firm whose time period is less than 1 years. Long run cost :- Cost incurred by the firm whose time period is beyond 5 years. Here fixed factors are also variable in nature.

    CONT..
    

    Incremental cost :- Change in total cost by introducing new technology. Sunk cost :- A cost that is incurred in the past and is not affected by a current decision. It is not effected by production purpose. e.g. Depreciation.

    THEORIES OF COST

    1.Traditional theory :- In this we study Short run cost curve and long run cost curve

    Short-run cost

    Total cost

    Average cost

    Marginal cost

    Total fixed cost

    Average fixed cost

    Total variable cost

    Average variable cost

    Total cost
    Total cost (TC):- It refers to total money incurred by the firm in producing any given quantity of output. Total cost (TC)= Fixed cost (FC) + variable cost (VC) Fixed cost (FC):- Its refer to the costs incurred by the firm on the use of all fixed factors. It is fixed in nature i.e. it doesnt change with the change in output. Y Quantity Fixed cost 0 10 1 10 10 FC 2 10 FC 3 10 4 5 10 10 0 1 2 3 4 5 Qyt X

    Variable cost (VC):- It refers to the cost incurred by the firm on the use of the variable factors. It is variable in nature i.e it changes with change in output. Quantity 0 1 2 3 4 5 Variable cost 0 10 18 24 28 32 O 1 2 3 Quantity 4 5 X VC Y

    Curve of total cost Quantity VC 0 0 1 2 3 4 5 6 10 18 24 28 32 38 FC 10 10 10 10 10 10 10 TC 10 20 28 34 38 42 48

    O X TC = FC + VC

    Average cost curve


    

    Average cost is simply the total cost divided by the number of unit produced. In short run , there are three type of average cost. 1) Average fixed cost (AFC) 2) Average variable cost (AVC) 3) Average total cost (ATC) Average fixed cost (AFC) := It is the total fixed cost divided by number of unit produced. AFC = TFC/Q Average variable cost (AVC) := It is the total variable cost divided by number of unit produced. AVC = TVC/Q

    Average total cost (ATC) :- It is the total cost divided by the number of unit produced. ATC = TC/Q Since the total cost is the sum of total fixed cost and total variable cost, Average total cost can also be obtained as the sum of average fixed cost and average variable cost. ATC or AC = AFC + AVC since, AC = TC/Q = (TFC + TVC)/Q = TFC/Q + TVC/Q = AFC + AVC [since TC=TFC+TVC]

    Hence AC or ATC = AFC + AVC

    Marginal cost
    

    Marginal cost is the addition to the total cost as one more unit of unit of output is produced. MC = TCn TC(n-1) Since the marginal cost is change in total cost as a result of change in output by one unit, it can be written as: MC = TC/ Q Y MC cost A

    quantity

    Output Q

    TFC b 60 60 60 60 60 60 60

    TVC TC c 0 40 76 102 132 170 222

    AFC AVC ATC c/a (e) _ 40 38 34 33 34 37 d+e _ 100 68 54 48 46 47

    MC
    TCnTC(n-1)

    a 0 1 2 3 4 5 6

    b+c b/a (d) 0 60 60 100 30 136 20 162 15 192 12 230 10 282

    _ 40 36 26 30 38 52

    Y K ATC B cost L A AVC

    M AFC O Q1 Q2 Q3 output Behaviour of Average costs X

    THANK YOU

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