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Theory of Cost
Theory of Cost
C O
O F
RY
E O
TH
COST
It is the firm of the individual
operating in a marketing has a
influence on the market supply of the
commodity.
In order to make use of the various
factor and non-factor inputs.
In common, the amount spend on these
inputs is called the cost of production.
CONCEPT OF COST
MONEY COST :
The amount spend in terms of money for the production of the
commodity is known as money cost .
NOMINAL COST:
It is the money cost of production.
REAL COST :
It is the mental and physical and sacrifices undergone with a
view to producing a commodity .
OPPORTUNITY COST :
The real concept of production of
given commodity is the next best alternative
sacrificed in order to obtain that commodity
IMPLICIT COST :
It is the cost of self-owned resources
such as salary of proprietor.
EXPLICIT COST :
* It is the paid-out cost.
* It means payments made for the
productive resources purchased.
ACCOUNTING OR BUSINESS COST:
SELLING COST.
OTHER COST.
MANAGERIAL COST.
ELEMENTS
WAGES.
INTEREST.
RENT.
COST OF RAW MATERIALS.
REPLACEMENT AND REPAIRING.
DEPRICIATION.
PROFITS.
SHORT-RUN COSTS
ATC=TC/Q.
AC=AFC+AVC.
CHANGES IN
VARIABLE COST
CHANGE IN FIXED
COST-NO EFFECT
MARGINAL COST:
Change in the the total cost
resulting from the unit change in the
quantity produced.
MC=Change in Q/Change in
TC.
SHORT RUN COSTS
OF PRODUCTION
LONG-RUN COST
CURVES
It is a period of time during which
the quantities of all factors,variable
as well as fixed can be adjusted.
LONG-RUN AVERAGE COST CURVE:
Slopes downwards.
Larger scope of specialization of
labour.
Increasing use of specialized
machinery.
Other technological management.
LONG-RUN MARGINAL COST
CURVE:
Cuts the LRAC at the lowest point.
It is equal to the LRAC when LAC
is neither rising nor falling.
AN K U
T H