Tuesday, May 15, 2012

Economic Analysis of Costs

Economic Analysis of Costs

Economic Analysis of Costs

Economics Revision Article Series


Various Types of Costs

Total cost is categorised into fixed and variable cost.
Fixed cost is paid independently of the level of output in period.
Variable costs vary with the units of production
Marginal cost
Marginal cost denotes the extra cost of producing one extra unit of output of a product.
Average cost is total cost divided by total number of units produced.
Cost curves are U-shaped. Initially as inputs are increased there is an increasing returns to scale and average cost comes down and after certain level decreasing returns to scale sets in and average cost starts going up.
Firms would rationally aim at the minimum average cost point.
Opportunity Cost:The opportunity cost of a decision consists of the things that are given up by making that particular decision rather than the best alternative in the remaining set of opportunities to utilise the inputs.


Paul Samuelson and William D. Nordhaus, Economics, 13th Edition,  McGraw-Hill, 1989

Index of articles on Cost Accounting, Costing and Cost Management

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