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Cost Is The Value That Must Be Given Up To Acquire A Goods or Service

Cost is defined as the value that must be given up to acquire a good or service. It includes all expenditures incurred during production such as land, labor, capital, etc. Opportunity cost refers to the next best alternative forgone in making a decision. Sunk costs cannot be recovered and become part of fixed costs. Implicit costs are indirect and intangible while explicit costs are direct and tangible. Fixed costs do not vary with output while variable costs do. Semi-variable costs have both fixed and variable elements. Cost curves include total, average, and marginal costs in both the short run where some inputs are fixed and the long run where all inputs are variable.

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65 views13 pages

Cost Is The Value That Must Be Given Up To Acquire A Goods or Service

Cost is defined as the value that must be given up to acquire a good or service. It includes all expenditures incurred during production such as land, labor, capital, etc. Opportunity cost refers to the next best alternative forgone in making a decision. Sunk costs cannot be recovered and become part of fixed costs. Implicit costs are indirect and intangible while explicit costs are direct and tangible. Fixed costs do not vary with output while variable costs do. Semi-variable costs have both fixed and variable elements. Cost curves include total, average, and marginal costs in both the short run where some inputs are fixed and the long run where all inputs are variable.

Uploaded by

rjreeja
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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COST

Cost is the value that must be given up to acquire a goods or service

It is aggregate of the expenditure incurred by the producer in the process of production

Example :-Land,labour,capital,etc.,
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Opportunity Cost

Definition the cost expressed in terms of the next best alternative

The cost must be calculated with reference to the other alternatives that were foregone.

SUNK COST

Is an expenditure that cannot be recovered. In essence, it becomes part of fixed costs.


E.g.= pre-harvest costs. sunk costs are retrospective (past) costs which have already been incurred and cannot be recovered.

Implicit Cost vs. Explicit Cost

An implicit cost is a cost that has occurred but it is not initially shown or reported as a separate cost. Implicit cost can not be traded and therefore can not be counted in terms of money. implicit cost is indirect intangible cost.

An explicit cost is one that has occurred and is clearly reported as a separate cost. Explicit cost can be counted in terms of money Explicit cost is a direct tangible cost

FIXED COST AND VARIABLE COST

Fixed costs are costs that are independent of output. Fixed costs often include rent, buildings, machinery, etc.

Variable costs are costs that vary with output. Variable costs may include wages, utilities, materials used in production, etc.

Semi variable cost


Semi-variable costs are those that have both fixed cost and variable cost elements. For example, a manufacturer's electricity bill may include elements that are fixed (such as lighting that is required regardless of the level of production) and elements that are variable (such as the electricity used by machinery directly involved in manufacturing).

COST CURVES:
Fixed Costs (TFC) = costs that do not vary with output (present even when output, q, = 0) Variable Costs (TVC) = costs that vary with the rate of output Total costs (TC) = TFC + TVC Average Variable Cost (AVC) = total variable cost/ number of units produced

Average Average

Fixed Cost (AFC) = fixed costs/ output (units produced)

Total Cost (ATC) = total cost (variable and fixed) / number of units produced. Marginal Cost (MC) = the change in total cost due to one unit change in an output.

SHORT RUN
That period of time in which the level of uses of one or more of the input is fixed. In short run changes in output must be accomplished exclusively by the changes in the uses of the variable Input.

Total Cost Curves

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Average and Marginal Cost Curves


$ MC
C O S T

ATC

AVC

AFC

Output

LONG RUN COST


The Long run refers to that time in future when all inputs are variable inputs.

Thus in the long run output can be varied by changing the labour of both labour and capital.

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