Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
IMPLICIT COST
Value of input services that are used in production but not purchased in a ma
EXPLICIT COST
Value of resources purchased for production
COST OPPORTUNITY COST
CONCEPTS The value of a resource in its next best use
SOCIAL COST
Total cost of production of a good that
includes direct and indirect costs.
SUNK COST
The cost that a firm cannot recover from the expenditure it has ma
SHORT RUN
Total
Total cost
cost (TC
(TC )) also
also defined
defined as
as total
total fixed
fixed cost
cost (TFC)
(TFC) plus
plus
total
total variable
variable cost
cost (TVC).
(TVC).
TC = TFC + TVC
TC = TVC + TFC
TFC
TOTAL FIXED COST (TFC)
The cost of inputs that is independent of output.
QUANTITY
MC Q
AFC = TFC
AFC Q
QUANTITY
0 20 0 20 - - - -
1 20 15 35 20 15 35 15
2 20 25 45 10 12.50 22.50 10
3 20 30 50 6.67 10 16.67 5
4 20 35 55 5 8.75 13.75 5
5 20 45 65 4 9 13 10
SAVC
STAGE II
AFC continuous to decline and SATC will become minimum.
ATC remains constant at this stage since the falling effect of
AFC and rising effect of AVC is balanced.
.
STAGE III
The falling effect of AFC is lower than rising effect of AVC,
therefore ATC begins to increase.
SAFC
QUANITTY
ATC curve is “U-Shaped” because of the combined influences of AFC and AVC.
ATC
Quantity
ATC falling, MC curve lies below ATC curve.
ATC is at minimum point, ATC curve and MC curve are equal.
ATC starts to increase, MC curve lies above ATC curve.
Quantity
PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved
© Oxford Fajar Sdn. Bhd. (008974-T), 2013 6– 13
ISOCOST
An isocost line shows various combinations of two inputs,
capital and labour, which can be purchased with a given
amount of money for a given total cost.
An isocost equation shows the relationship between the inputs
(capital and labour) used in the production and the given total
cost by a firm.
The isocost equation can be written as:
TC = wL + rk
Where: TC = Total Cost
L = Labour
K = Capital (fixed)
w = Price of labour
r = Price of capital
Isocost Line
6
5
4
Capital
3
Isocost
2
1
0
1 2 3 4 5 Labour
Isocost Map
7
6
5
Capital
4
Isocost (RM100)
3
Isocost (RM120)
2
1
0
1 2 3 4 5 6 7 Labour
PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved
© Oxford Fajar Sdn. Bhd. (008974-T), 2013 6– 16
COST MINIMIZING
TECHNIQUES
The cost minimizing technique is selecting combinations of inputs
that minimize the total cost at the given level of output.
At point y, the slope of isoquant curve is equal to that of isocost line
and this is the most efficient technique for production.
7
6
5 Isocost (RM100)
Capital
4 x Isocost (RM120)
3 Isoquant
2 y
1 z
0 Labour
Points x and z are not efficient because the cost of production is exceeding RM120.
COST
SRAC1
SRAC5
SRAC2
SRAC4 LRAC
SRAC3
QUANTITY
Quantity
PRINCIPLES OF ECONOMICS Third Edition All Rights Reserved
© Oxford Fajar Sdn. Bhd. (008974-T), 2013 6– 20
LONG-RUN PRODUCTION
COST (cont.)
ECONOMIES OF SCALE
Advantages and benefits of a firm as it becomes larger and
larger.
Reduce long run average cost (LRAC).
Marketing economies, financial economies, labour economies,
technical economies, managerial economics.
DISECONOMIES OF SCALE
Problems faced by a firm as it becomes larger and larger.
Decrease long run average cost (LRAC).
Mismanagement, competition, labour diseconomies.
INTERNAL EXTERNAL
Raise the cost of production of a firm as The disadvantages faced by the industry
the firm expands as a whole
MR = TR/ Q
Quantity
Price
15
AP, MP
10
5 AR=MR=DD
0
10 20 30 40 50
Price
15
AP, MP
10
AR=DD
5
MR Quantity
0
10 20 30 40 50