Concept of Cost

COST OF PRODUCTION
The expenses incurred on all inputs of productionboth factor inputs and non-factor inputs are known as the cost of production.

cost function can be expressed as under,

C = f (Q, T, Pf)

Concepts of costs of production

Real Cost The cost of producing a good or service, including the cost of all resources used and the cost of not employing those resources in alternative uses. Nominal cost is the money cost (expenses) of production incurred on various inputs of production.

Concepts of costs of production

Explicit costs
are those cash payments which firms make to outsiders for their services and goods.

Implicit costs
are the costs of self-owned and self-employed resources.

Concepts of costs of production

Opportunity/ Alternative/ Transfer Cost
The cost of an alternative that must be missed in order to pursue a certain action.

External costs
A cost that is not borne by the firm, but is incurred by others in society is called an external cost.

Concepts of costs of production

Private Cost
Private costs refer to the costs to a firm in producing a commodity.

Social cost
is the total of all the costs associated with an economic activity.

Concepts of costs of production

Sunk cost: Money already spent and permanently lost. Historical cost The price paid for a plant originally at the time of purchase.

Concepts of costs of production

Transaction cost: The cost associated with the exchange of goods and services. Controllable cost: Costs which can be controllable by the executives are called as controllable cost.

Determinants Of Short Run Cost

Fixed cost Variable Cost Total Cost Total Fixed cost Total Variable Cost

Average Cost
Average Variable Cost Average Fixed Cost Marginal Cost

Graph Total Cost Curves

Graph Average Cost Curves