Total fixed costs tfc average fixed costs afc total variable costs tvc average variable cost avc total cost tc average total cost atc marginal cost mc 4. Let us discuss here some important concepts of the two categories. Managerial economics is a discipline that combines economic theory with managerial practice. Theory of production, in economics, an effort to explain the principles by which a business firm decides how much of each commodity that it sells its outputs or products it will produce, and how much of each kind of labour, raw material, fixed capital good, etc. The subtopics for each lecture are related to the chapters in the textbook. Download class xi economics english full study material, economics chapter notes, class xi economics english full study material.
Lecture notes principles of microeconomics economics. In other words, marginal cost is the addition to the total cost of producing n units instead of n 1 unit i. Cost analysis is all about the study of the behavior of cost with respect to various production criteria like the scale of operations, prices of the factors of production, size of output, etc. Download as pptx, pdf, txt or read online from scribd. This section provides lecture notes from the course. These lecture notes were prepared by xingze wang, yinghsuan lin, and frederick jao specifically for mit opencourseware. We study some important concepts of costs, and traditional and modern theories of cost. Cost of producing a good, in economics is the sum total of all the, a. Pdf chapter 2 cost concepts and design economic khalil.
This field of knowledge is known as production economics and cost principles, and includes aspects such as the production function, the law of diminishing returns, marginalism and cost concepts and relations. In order to begin our discussion of economics, we first need to understand 1 the. The sum total of the expenses incurred plus the normal profit expected by the producer is called the cost of production. Opportunity cost to gain more of a good, something else must be given up. Students then examine the broad social goals of an economy in prepara. Cost it refers to the expenditure incurred by a producer on the factor as well as nonfactor inputs for a given amount of output of a commodity 2. For this to be the case, the shadow price of a commodity must be defined. The economic concepts and issues introduced in the course of this book provide a basis for developing your. Besides money cost there are other costs that are equally important to take decisions on various matters. The concepts should be clear which will help in faster learning. Marginal cost is addition to the total cost caused by producing one more unit of output. Economics discusses the economic problems and economic activities and indicates proper solution to these problems.
The better you understand these concepts, the better you can make the wisest choices when it. Cost curves or cost concepts in economics authorstream presentation. Free markets may not be perfect but they are probably the best way to organize an economy sarwat jahan and ahmed saber mahmud 4 what is keynesian economics. Management accounting helps the management to conduct the business in a more ef. The attached concepts made as per ncert and cbse pattern will help the. It refers to the monetary expenditure which a firm has to incur in order to purchase or hire the factors of production. Objectives chapter 2 2 1 describe some of the basic cost concepts. Cost cbse notes for class 12 micro economics learn cbse. It should be remembered that every producer is interested in money costs. Here, costs include imputed value of the entrepreneurs own resources and services, as well as the salary of the ownermanager. Different cost concepts an overview economics discussion. Due to a variety of time and data constraints, many transportation. In particular we show how and when shadow prices can be used to construct cost benefit tests which evaluate projects in terms of their net effect on social welfare.
High school economics troup county school district. Class xi economics english full study material concepts. Want may be defined as an insatiable desire or need by human beings to own goods or services that give satisfaction. If so, the opportunity cost of studying economics is enormous. When commodities and services are produced, various expenses have to be incurred, e. Money cost thus includes all the business expenses which involve outlay of money to support business operations. Opportunity cost refers to the loss of earnings due to opportunities foregone due to scarcity of resources. Gregory mankiws principles of microeconomics, 2nd edition, chapter 1 p.
Principles of production economics and cost concepts objectives to explain the production function, the law of diminishing returns and marginalism in simple language. The production possibilities frontier illustrates concepts of a. Concepts and tools is intended as a textbook for managerial economics courses in business and management postgraduate progammes. Principles of production economics and cost concepts. Costs are considered to be a function of output in economic theory. Cost concepts and design economics free download as powerpoint presentation. Besides, how economic development of the country is achieved through the means of economic planning is also included in the subject matter of economics. A list and definition of different types of economic costs fixed, variable, total, marginal, sunk, accounting, opportunity cost.
It is all about the financial aspects of production. To indicate how the most profitable production level optimum production can be achieved. Cost function a cost function shows the functional relationship between output and cost of production. Increases in revenue are therefore likely to be increases in profit or reductions in deficits. In this way, managerial economics is considered as economics applied to problems of choice or alternatives and allocation of scarce resources by the firms. High school economicsopens with an exploration of the fundamental trilogy of economics scarcity, choice, and cost. Economics also discuses about the value judgment of human actions and behavior. The term cost is most widely used as the money cost of production which relates to the money expenditure of a firm on. Cost accounting helps the business to ascertain the cost of productionservices offered by the organization and also provides valuable information for taking various decisions and also for cost control and cost reduction.
Cost cbse notes for class 12 micro economics cbse notescbse notes micro economicsncert solutions micro economics introduction this chapter gives a detailed version of cost and its types, related numericals and the relationship between them. A managerial economists concept of cost does not necessarily coincide with that of accountant. Oil price concepts are often expressed in ways which do not immediately reveal their real economic meaning. A read is counted each time someone views a publication summary such as the title, abstract, and list of authors, clicks on a figure, or views or downloads the fulltext. The lecture notes are from one of the discussion sections for the course. Analytical cost concepts used in economic analysis of business. Money costs therefore relate to money outlays by a firm or factors of a production which enable the firm to produce and sell a product. Cost concepts analytical costs accounting costs youtube. It is concerned with the changing economic forces that direct and constrain the choices of managers, practitioners and other decisionmakers across the media. Based on the theory of firm, these principles explain various cost concepts, output response to inputs and the use of inputsresources to maximize profits and or minimize costs.
Cost concepts are vital in many areas of planning, control, and decisionmaking. Since we are unable to have everything we desire, we must make choices on how we will use our resources. The concept of marginal cost occupies an important place in economic theory. Economic concepts explained v foreword maurice obstfeld i. Explain the concept of opportunity cost and explain why accounting profits and economic profits are not the same. Production and costs important questions for class 12 economics concept of cost function. On oil price concepts oxford institute for energy studies. It is used for analyzing the cost of a project in short and long run. Sometimes, basic concepts of economics are referred to as basic elements of economics. Media economics combines the study of economics with the study of media. Ordinarily, costs refer to the money expenses incurred by a firm in the production process. Chapter 3 basic economic concepts mit opencourseware.
Money cost of production is the actual monetary expenditure made by company in the production process. Cost and costing techniques in managerial economics informatics. Our society thrives on the five basic economic principles, whether its the marginal principle of economics or opportunity cost. For example, we shall find that some price concepts are in fact fiscal concepts, and that some cost concepts tell us more about prices than certain prices taken at face value. Scarcity is the condition in which our wants are greater than our limited resources. Because something is limited, we need to make decisions regarding how we use and allocate our resources. Choice choices in the production of different goods need to be made. For example the monetary expenditure on purchase of raw material, payment of wages and salaries, payment of rent and other charges of business etc can be termed as money cost. It is the expense of purchasing or hiring factor services for production and other business activities. Cost refers the monetary measure of the amount of resources given up or used for some specific purpose. When a firm starts producing goods, it has to pay the price for the factors employed for the production.