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Cost and Cost Concepts (Autosaved)

The document discusses different types of costs including accounting and economic costs, fixed and variable costs, average and marginal costs. It also discusses short run and long run costs and provides definitions and formulas for total fixed cost, total variable cost, average fixed cost, average variable cost, average cost, and marginal cost.

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MOAZZAM SHAIKH
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25 views13 pages

Cost and Cost Concepts (Autosaved)

The document discusses different types of costs including accounting and economic costs, fixed and variable costs, average and marginal costs. It also discusses short run and long run costs and provides definitions and formulas for total fixed cost, total variable cost, average fixed cost, average variable cost, average cost, and marginal cost.

Uploaded by

MOAZZAM SHAIKH
Copyright
© © All Rights Reserved
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 and cost concepts

Dr Manasi Kurtkoti
Head Department of Economics, Dr D. Y Patil ACS
College, Pimpri.
IQAC Coordinator
Member- BOS (Economics), SPPU
Adjunct Professor, COEP, Pune
Types of cost
• Accounting and Economic Costs
• Outlay and Opportunity Costs
• Direct or Traceable Costs and Indirect or
Non-Traceable Costs
Explicit and Implicit or Imputed Costs:

Fixed Variable Total


Cost cost cost
Types of cost continued
• Total, Average and Marginal Costs:
• Average cost:
• Average cost (AC) is of statistical nature, it is not actual
cost. It is obtained by dividing the total cost (TC) by the
total output (Q), i.e.
• AC = TC / Q = average cost
• Marginal cost:
• Marginal cost is the addition to the total cost on account
of producing an additional unit of the product. Or,
marginal cost is the cost of marginal unit produced.
Given the cost function, it may be defined as
• MC = TC/ Q
The short run and long run costs
• Short run: Fixed Cost + variable cost
• Long run: all costs are variable cost
• Incremental Costs and Sunk Costs
• Historical and Replacement Costs:
• Private and Social Costs
Short term cost curves
• costs that remain
fixed in the short
period. These costs do
not change with the
change in the level of
output.
• For example, rents,
interest, and salaries
Total Variable Costs (TVC)
• costs that change with
the change in the level
of production. For
example, costs
incurred on
purchasing raw
material, hiring labor,
and using electricity
Total Costs (TC)
• Total Cost = TFC +
TVC
• TC also changes with
the changes in the
level of output as
there is a change in
TVC
Average fixed Costs (AFC)
• AFC = TFC/Output
• TFC is constant as
production increases,
thus AFC falls.
Average Variable Costs (AVC):
• efer to the per unit
variable cost of
production. It implies
organization’s
variable costs divided
by the quantity of
output produced.
• It is calculated as:
• AVC = TVC/ Output
Average Costs (AC):
• AC is also equal to the
sum total of AFC and
AVC. AC curve is also
U-shaped curve as
average cost initially
decreases when
output increases and
then increases when
output increases.
Marginal Cost:
(MC):
• Refer to the addition
to the total cost for
producing an
additional unit of the
product.
• Marginal cost is
calculated as:
• MC = TCn = TCn-1
• MC = ∆TC/∆Output
Long run cost curve: envelop

n such a case, the smooth curve enveloping all.


Thank
you

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