Cost Curves
We already know that following are the important cost concepts related to the production process of a firm:
• Fixed Cost
• Varibale Cost
• Average Cost
• Marginal Cost please refer to following page Introduction to Cost Concepts to understand various cost concepts in detail. Here we will briefly state again the meaning of above stated cost concepts for better understanding of the module on short run cost analysis.
Fixed Cost is that cost which does not change (that is either goes up or goes down) irrespective of whether the firm is operating or not. For example on account of strike or account of Lockout in Maruti-Suzuki’s Manesar plant the production process stands still. Even when the plant is not operating the Firm still has to bear such expenses which are indirect in nature. For Example Rent of the factory premises, Wages of administrative employees etc. In other Fixed cost is not related direct production/manufacturing expenses.
Variable Cost on the Other hand is directly proportional to the production operations. As the size of production at any business grows, along with that grow the variable expenses. As the name suggests, the variable expenses vary with the business operations. When the firm is not operating on account of Strike/Lockout etc, then the variable cost of the firm is Zero
Average Cost is the cost that is obtained after dividing Total Cost with the number of units produced.
• Total Cost = Fixed Cost + Variable Cost
• Average Cost = Total Cost / Units of Good produced
Marginal Cost is the change in the Total cost when an additional unit of good is produced. In other words Marginal Cost is difference between total Cost of producing ‘N + 1’ units of good and ‘N’ units of good.
• Marginal Cost = TCn − TCn − 1
Short Run and Long Run in Economic Theory
Understanding Short Run and Long Run Concept in Economic Theory
A famous statement made by celebrated economist J.M. Keynes states that "In the Long Run we are all
• Fixed Cost
• Varibale Cost
• Average Cost
• Marginal Cost please refer to following page Introduction to Cost Concepts to understand various cost concepts in detail. Here we will briefly state again the meaning of above stated cost concepts for better understanding of the module on short run cost analysis.
Fixed Cost is that cost which does not change (that is either goes up or goes down) irrespective of whether the firm is operating or not. For example on account of strike or account of Lockout in Maruti-Suzuki’s Manesar plant the production process stands still. Even when the plant is not operating the Firm still has to bear such expenses which are indirect in nature. For Example Rent of the factory premises, Wages of administrative employees etc. In other Fixed cost is not related direct production/manufacturing expenses.
Variable Cost on the Other hand is directly proportional to the production operations. As the size of production at any business grows, along with that grow the variable expenses. As the name suggests, the variable expenses vary with the business operations. When the firm is not operating on account of Strike/Lockout etc, then the variable cost of the firm is Zero
Average Cost is the cost that is obtained after dividing Total Cost with the number of units produced.
• Total Cost = Fixed Cost + Variable Cost
• Average Cost = Total Cost / Units of Good produced
Marginal Cost is the change in the Total cost when an additional unit of good is produced. In other words Marginal Cost is difference between total Cost of producing ‘N + 1’ units of good and ‘N’ units of good.
• Marginal Cost = TCn − TCn − 1
Short Run and Long Run in Economic Theory
Understanding Short Run and Long Run Concept in Economic Theory
A famous statement made by celebrated economist J.M. Keynes states that "In the Long Run we are all