Learning the important concepts is very important for every student to get better marks in examinations. Besides money cost there are other costs that are equally important to take decisions on various matters. 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. It is used for analyzing the cost of a project in short and long run. Different cost concepts an overview economics discussion. Cost refers the monetary measure of the amount of resources given up or used for some specific purpose. It refers to the monetary expenditure which a firm has to incur in order to purchase or hire the factors of production. The concepts should be clear which will help in faster learning. Chapter 2 cost concepts and design economics free download as powerpoint presentation. Objectives chapter 2 2 1 describe some of the basic cost concepts. Explain the concept of opportunity cost and explain why accounting profits and economic profits are not the same.
Production economics, thus provides a framework for decision making at the level of a firm for increasing efficiency and profits. These lecture notes were prepared by xingze wang, yinghsuan lin, and frederick jao specifically for mit opencourseware. If so, the opportunity cost of studying economics is enormous. Opportunity cost to gain more of a good, something else must be given up. Marginal cost is addition to the total cost caused by producing one more unit of output. Cost curves or cost concepts in economics authorstream. It should be remembered that every producer is interested in money costs. For this to be the case, the shadow price of a commodity must be defined. The term cost is most widely used as the money cost of production which relates to the money expenditure of a firm on. Opportunity cost refers to the loss of earnings due to opportunities foregone due to scarcity of resources.
Chapter 3 basic economic concepts mit opencourseware. 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. This section provides lecture notes from the course. Download as pptx, pdf, txt or read online from scribd. When a firm starts producing goods, it has to pay the price for the factors employed for the production. Scarcity is the condition in which our wants are greater than our limited resources. Analytical cost concepts used in economic analysis of business. We study some important concepts of costs, and traditional and modern theories of cost. A list and definition of different types of economic costs fixed, variable, total, marginal, sunk, accounting, opportunity cost. Cost concepts are vital in many areas of planning, control, and decisionmaking. The lecture notes are from one of the discussion sections for the course. Lecture notes principles of microeconomics economics. Gregory mankiws principles of microeconomics, 2nd edition, chapter 1 p. Pdf chapter 2 cost concepts and design economic khalil.
Class xi economics english full study material concepts. Cost of producing a good, in economics is the sum total of all the, a. Students then examine the broad social goals of an economy in prepara. Cost concepts analytical costs accounting costs youtube.
Cost curves or cost concepts in economics authorstream presentation. The economic concepts and issues introduced in the course of this book provide a basis for developing your. The attached concepts made as per ncert and cbse pattern will help the. Management accounting helps the management to conduct the business in a more ef. 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. 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.
In order to begin our discussion of economics, we first need to understand 1 the. Money cost thus includes all the business expenses which involve outlay of money to support business operations. Choice choices in the production of different goods need to be made. The subtopics for each lecture are related to the chapters in the textbook. It is concerned with the changing economic forces that direct and constrain the choices of managers, practitioners and other decisionmakers across the media. Knowledge of and insight into these economic principles are important since. It is all about the financial aspects of production. Here, costs include imputed value of the entrepreneurs own resources and services, as well as the salary of the ownermanager.
To an accountant or any other individual ot her than an ec onomist, cost refers to the monetary expenses incurred by a firm in the course of producing a commodity. Cost function a cost function shows the functional relationship between output and cost of production. Economic concepts explained v foreword maurice obstfeld i. When commodities and services are produced, various expenses have to be incurred, e. Ordinarily, costs refer to the money expenses incurred by a firm in the production process. Cost and costing techniques in managerial economics informatics. Principles of production economics and cost concepts objectives to explain the production function, the law of diminishing returns and marginalism in simple language. Download class xi economics english full study material, economics chapter notes, class xi economics english full study material. 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. Cost cbse notes for class 12 micro economics learn cbse. 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. To indicate how the most profitable production level optimum production can be achieved.
In other words, marginal cost is the addition to the total cost of producing n units instead of n 1 unit i. Concepts and tools is intended as a textbook for managerial economics courses in business and management postgraduate progammes. 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. On oil price concepts oxford institute for energy studies. 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. 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.
Our society thrives on the five basic economic principles, whether its the marginal principle of economics or opportunity cost. Cost concepts and design economics free download as powerpoint presentation. The sum total of the expenses incurred plus the normal profit expected by the producer is called the cost of production. Managerial economics is a discipline that combines economic theory with managerial practice. It is the expense of purchasing or hiring factor services for production and other business activities. A managerial economists concept of cost does not necessarily coincide with that of accountant. In this unit, we will learn about the different types of costs and product costing systems. Oil price concepts are often expressed in ways which do not immediately reveal their real economic meaning. Economics also discuses about the value judgment of human actions and behavior. High school economicsopens with an exploration of the fundamental trilogy of economics scarcity, choice, and cost.
Because something is limited, we need to make decisions regarding how we use and allocate our resources. 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. 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. 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. Let us discuss here some important concepts of the two categories.
The concept of marginal cost occupies an important place in economic theory. Economics discusses the economic problems and economic activities and indicates proper solution to these problems. 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. Want may be defined as an insatiable desire or need by human beings to own goods or services that give satisfaction. Important questions for class 12 economics concept of cost. Costs are considered to be a function of output in economic theory. In this way, managerial economics is considered as economics applied to problems of choice or alternatives and allocation of scarce resources by the firms. Economics is the study of scarcity and choice scarcity means that there is a finite amount of a good or service basically they are limited.
Money cost of production is the actual monetary expenditure made by company in the production process. Due to a variety of time and data constraints, many transportation. Principles of production economics and cost concepts. Besides, how economic development of the country is achieved through the means of economic planning is also included in the subject matter of economics. Production and costs important questions for class 12 economics concept of cost function. High school economics troup county school district.
Since we are unable to have everything we desire, we must make choices on how we will use our resources. The better you understand these concepts, the better you can make the wisest choices when it. 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. Increases in revenue are therefore likely to be increases in profit or reductions in deficits. 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.
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