The main thing is the analysis of economic activity. Firm. Production costs and their types

At the beginning of any course in economic theory, a great deal of attention is paid to the study of costs. This is due to the high importance of this element of the enterprise. In the long run, all resources are variable. In the short run, part of the resources remains unchanged, and part changes to reduce or increase output.

In this regard, it is customary to distinguish two types of costs: fixed and variable. Their sum is called total costs and is most often used in various calculations.

fixed costs

They are independent of the final release. That is, no matter what the company does, no matter how many customers it has, these costs will always have the same value. On the chart, they are in the form of a straight horizontal line and are designated FC (from English Fixed Cost).

Fixed costs include:

Insurance payments;
- salaries of management personnel;
- depreciation deductions;
- payment of interest on bank loans;
- payment of interest on bonds;
- rent, etc.

variable costs

They directly depend on the amount of products produced. It is not a fact that the maximum use of resources will allow the company to get the maximum profit, so the issue of studying variable costs is always relevant. On the chart, they are depicted as a curved line and are denoted by VC (from the English Variable Cost).

Variable costs include:

Raw material costs;
- the cost of materials;
- electricity costs;
- fare;
- etc.

Other types of costs

Explicit (accounting) costs are all costs associated with the purchase of resources that are not owned by a particular firm. For example, labor, fuel, materials, etc. Implicit costs are the cost of all the resources that are used in production and that the firm already owns. An example is the salary of an entrepreneur, which he could receive by working for hire.

There are also return costs. Recoverable costs are costs whose value can be recovered in the course of the company's activities. The company cannot receive irrevocable even if it completely ceases its activities. For example, the costs associated with registering a company. In a narrower sense, sunk costs are costs that have no opportunity cost. For example, a machine that was custom-made specifically for this company.

(to simplify, measured in monetary terms), used in the course of the enterprise's business activities at (for) a certain time stage. Often in everyday life, people confuse these concepts (costs, costs and expenses) with the purchase price of a resource, although such a case is also possible. Costs, costs and expenses have historically not been separated in Russian. In Soviet times, economics was an "enemy" science, so there was no significant further development in this direction, except for the so-called. "Soviet economy".

In world practice, there are two main schools of understanding costs. This is a classic Anglo-American, which includes both Russian and continental, which rests on German developments. The continental approach structures the content of costs in more detail and therefore is becoming more common all over the world creating a qualitative basis for tax, accounting and management accounting, costing, financial planning and controlling.

cost theory

Clarifying the definition of concepts

To the above definition, more clarifying and delimiting definitions of concepts can be added. According to the continental definition of the movement of value flows at different levels of liquidity and between different levels of liquidity, we can make the following distinction between the concepts for negative and positive value flows of organizations:

In economics, there are four main levels of value flows in relation to liquidity (in the image from bottom to top):

1. Equity level(cash, highly liquid funds (checks ..), operational settlement accounts in banks)

payments and payments

2. Level of money capital(1. Level + accounts receivable - accounts payable)

Movement at a given level is determined costs and (financial) receipts

3. Production capital level(2. Level + production necessary subject capital (material and non-material (for example, a patent)))

Movement at a given level is determined costs and production income

4. Net worth level(3. Level + other subject capital (tangible and non-material (for example, accounting program)))

Movement at a given level is determined expenses and income

Instead of the level of net capital, you can use the concept total capital level, if we take into account other non-subject capital (for example, the company's image ..)

The movement of values between levels is usually carried out at all levels at once. But there are exceptions when only a few levels are covered, and not all. They are numbered in the picture.

I. Exceptions in the movement of value flows of levels 1 and 2 due to credit transactions (financial delays):

4) payments, not costs: repayment of credit debt (= "partial" loan repayment (NAMI))

1) costs, not payments: the appearance of credit debt (= the appearance (of US) of a debt to other participants)

6) payments, non-receipt: input of receivables (= "partial" repayment of debt by other participants for a product / service sold (by NAMI)

2) receipts, not payments: the appearance of receivables (=provision (by NAMI) of installments to pay for the product / service to other participants)

II. Exceptions in the movement of value flows of levels 2 and 4 are due to warehouse operations (material delays):

10) costs, not costs: payment for credited materials that are still in stock (=payment (by NAMI) on debit regarding "stale" materials or products)

3) expenses, not expenses: issuance of unpaid materials from the warehouse (in (OUR) production)

11) receipts, not income: pre-payment for subsequent delivery (of (OUR) "future" product by other participants)

5) revenues, non-revenues: the launch of a self-produced installation (= "indirect" future incomes will create an inflow of value of this installation)

III. Exceptions in the movement of value flows of levels 3 and 4 are due to the asynchrony between the intra-periodic and inter-periodic production (main) activities of the enterprise and the difference between the main and associated activities of the enterprise:

7) expenses, not expenses: neutral expenses (= expenses of other periods, non-production expenses and extraordinarily high expenses)

9) costs, not costs: calculation costs (=write-offs, interest on equity, renting out the company's own real estate, owner's salary and risks)

8) income, non-productive income: neutral income (=income of other periods, non-productive income and unusually high income)

It was not possible to find production incomes that would not be incomes.

financial balance

Foundation of financial balance Any organization can be simplified to name the following three postulates:

1) In the short term: superiority (or compliance) of payments over payments.
2) In the medium term: the superiority (or matching) of income over costs.
3) In the long run: the superiority (or matching) of income over expenses.

Costs are the "core" of costs (the organization's main negative value stream). Production (basic) income can be attributed to the "core" of income (the main positive value stream of the organization), based on the concept of specialization (division of labor) of organizations in one or more types of activities in society or the economy.

Cost types

Third-party company services
Other

More detailed cost structuring is also possible.

Cost types

Influence on the cost of the final product
- indirect costs
According to the relationship with the loading of production capacities
Relative to the production process
- Production costs
- Non-manufacturing costs
By constancy in time
- time-fixed costs
- episodic costs over time
By type of cost accounting
- accounting costs
- calculator costs
By subdivisional proximity to manufactured products
- overhead costs
- general business expenses
By importance to product groups
- group A costs
- group B costs
In terms of importance to manufactured products
- product 1 costs
- product 2 costs

Importance for decision making
- relevant costs
- irrelevant costs
By disposability
- avoidable costs
- fatal costs
Adjustability
- adjustable
- unregulated costs
Possible return
- return costs
- sunk costs
By behavior of costs
- incremental costs
- marginal (marginal) costs
Cost to quality ratio
- corrective action costs
- preventive action costs

Sources

Kistner K.-P., Steven M.: Betriebswirtschaftlehre im Grundstudium II, Physica-Verlag Heidelberg, 1997

Economic, accounting, opportunity costs.

If you look at the sale and purchase from the position of the seller, then in order to receive income from the transaction, it is first necessary to recoup the costs incurred for the production of goods.

Rice. 18.1.

Economic (imputed) costs - these are economic costs incurred, in the opinion of the entrepreneur, by him in the production process. They include:

1) resources acquired by the firm;
2) the internal resources of the firm, not included in the market turnover;
3) normal profit, considered by the entrepreneur as compensation for risk in business.

It is the economic costs that the entrepreneur makes it his duty to reimburse primarily through the price, and if he fails, he is forced to leave the market for another area of activity.

Accounting costs - cash expenditures, payments made by the firm for the purpose of acquiring on the side the necessary factors of production. Accounting costs are always less than economic ones, since they take into account only the real costs of acquiring resources from external suppliers, legally formalized, existing in an explicit form, which is the basis for accounting.

Accounting costs include direct and indirect costs. The first ones consist of expenses directly for production, and the second ones include costs without which the company cannot work normally: overhead costs, depreciation, interest payments to banks, etc.

The difference between economic and accounting costs is the opportunity cost.

Opportunity cost - is the cost of producing a product that the firm will not produce because it uses resources to produce the product. Essentially, the opportunity cost is it is the cost of lost opportunities. Their value is determined by each entrepreneur independently based on his personal ideas about the desired profitability of the business.

Fixed, variable, general (gross) costs.

An increase in the firm's output usually results in an increase in costs. But since no production can develop indefinitely, costs are a very important parameter in determining the optimal size of an enterprise. For this purpose, the division of costs into fixed and variable is applied.

Fixed costs - the costs that a firm incurs regardless of the volume of its production activity. These include: rent for premises, equipment costs, depreciation, property taxes, loans, remuneration of managerial and administrative apparatus.

Variable costs - the costs of the firm, which depend on the magnitude of production. These include: the cost of raw materials, advertising, wages of employees, transport services, value added tax, etc. With the expansion of production, variable costs increase, and with a reduction, they decrease.

The division of costs into fixed and variable is conditional and acceptable only for a short period during which a number of production factors remain unchanged. In the long run, all costs become variable.

Gross costs - is the sum of fixed and variable costs. They represent the cash costs of the firm for the production of products. The relationship and interdependence of fixed and variable costs as part of the general can be expressed mathematically (formula 18.2) and graphically (Fig. 18.2).

Rice. 18.2.

C - company's costs; 0 - the number of products produced; GS - fixed costs; US - variable costs; TS - gross (general) costs

where RS - fixed costs; US - variable costs; GS - total costs.

production costs- this is a set of costs incurred by enterprises in the process of production and sale of products.

Production costs can be classified in many ways. From the firm's point of view, individual production costs are singled out. They directly take into account the costs of the economic entity itself. Entrepreneurial firms have different individual production costs. In some cases, average industry and social costs are taken into account. Social costs are understood as the costs of producing a certain type and volume of products from the standpoint of the entire national economy.

There are also production costs and distribution costs, which are associated with the phases of the movement of capital. Production costs include only those costs that are directly related to material creation, to the production of a product. Distribution costs include all costs incurred by the sale of manufactured products. They include incremental and net distribution costs.

Additional distribution costs are the costs associated with transportation, warehousing and storage of products, their packaging and packaging, with bringing products to the direct consumer. They increase the final cost of the product.

Expenses for advertising, rent of commercial premises, expenses for the maintenance of sellers and sales agents, accountants form the net distribution costs, which do not form a new value.

In the conditions of market relations, the economic understanding of costs is based on the problem of limited resources and the possibility of their alternative use (economic costs).

From the point of view of an individual firm, economic costs are the costs that the firm must bear in favor of the supplier of resources in order to divert them from use in alternative industries. Also, costs can be both external and internal. Costs in cash that the company makes in favor of suppliers of labor services, fuel, raw materials, auxiliary materials, transport and other services are called external, or explicit (actual) costs. In this case, resource providers do not own the firm. Explicit costs are fully reflected in the accounting of enterprises, and therefore they are called accounting costs.

At the same time, the firm can use its own resources. In this case, too, costs are inevitable. The costs of own resource and independently used are unpaid, or internal, implicit (implicit) costs. The firm considers them as the equivalent of those cash payments that would be received for a self-used resource in the most optimal use of it.

Implicit costs cannot be equated with so-called sunk costs. Sunk costs are costs incurred by the firm once and cannot be recovered under any circumstances. Sunk costs do not belong to the category of alternative costs, they are not taken into account in the current costs of the company associated with its production activities.

There is also such a criterion for classifying costs as time intervals, during the second they take place. From this point of view, production costs in the short run are divided into fixed and variable, and in the long run all costs are represented by variables.

fixed costs(TFC) - those actual costs that do not depend on the volume of output. Fixed costs occur even when the product is not produced at all. THEY are connected with the very existence of the company, i.e. with expenses for the general maintenance of a factory or plant (rental payments for land, equipment, depreciation deductions for buildings and equipment, insurance premiums, property tax, salaries of senior management personnel, payments on bonds, etc.) In the future, production volumes may change, and fixed costs will remain unchanged. In the aggregate, fixed costs are the so-called overhead costs.

variable costs(TVC) - those costs that change with the change in the quantity of goods produced. Variable costs include the cost of raw materials, materials, fuel, electricity, payment for transport services, payment for most of the labor resources (salary).

There are also total (total), average and marginal costs.

The total, or general, production costs (Fig. 11.1) consist of the sum of all fixed and variable costs: TC = TFC + TVC.

In addition to total costs, the entrepreneur is interested in average costs, the value of which is always indicated per unit of output. There are average total (ATC), average variable (AVC) and average fixed (AFC) costs.

Average total cost(ATC) is the total cost per unit of output, which is usually used to compare with the price. They are defined as the quotient of total costs divided by the number of units of output produced:

Average variable costs(AVC) is an indicator of the cost of a variable factor per unit of output. They are defined as the quotient of gross variable costs divided by the number of units of output: AVC=TVC/Q.

Average fixed costs(AFC), fig. 11.2 - an indicator of fixed costs per unit of output. They are calculated according to the formula AFC=TFC/Q.

In the cost theory of a firm, an important role belongs to marginal cost (MC) - the cost of producing an additional unit of output in excess of the amount already produced. The MC can be determined for each additional unit of output by relating the change in total cost to the number of units of output that caused the change: MC=ΔTC/ΔQ.

The long-term period in the activity of the firm is characterized by the fact that it is able to change the amount of all production factors used, which are variables.

The long-run ATC curve (Fig. 11.3) shows the lowest cost of production for any given output, provided that the firm had the necessary time to change all of its factors of production. It can be seen from the figure that the increase in production capacity at the enterprise will be accompanied by a decrease in the average total cost per unit of output until the enterprise reaches the size corresponding to the third option. A further increase in production will be accompanied by an increase in long-term average total costs.

The dynamics of the curve of long-term average total costs can be explained using the so-called economies of scale of production.

As the size of the enterprise grows, a number of factors can be identified that determine the reduction in average production costs, i.e. giving a positive economies of scale:

specialization of labor;
specialization of management personnel;
efficient use of capital;
production of by-products.

The negative scale effect is that, over time, the expansion of firms can lead to negative economic consequences and, consequently, to an increase in the cost of production per unit of output. The main reason for the emergence of negative economies of scale is associated with certain managerial difficulties.

In the economic practice of our country, the category "cost" is used to determine the value of production costs. Under production cost understand the cash current costs of enterprises for its production and sale. The cost price shows what the manufacturing and marketing of products cost the enterprise. The cost price reflects the level of technology, organization of production and labor at the enterprise, the results of management. Its comprehensive analysis enables enterprises to more fully identify unproductive costs, various kinds of losses, and find ways to reduce production costs. The cost price is a consequence of the economic efficiency of capital investments, the introduction of new equipment and production technology, and the modernization of equipment. When developing technical measures, it allows you to choose the most profitable, optimal options.

According to the level and place of formation of costs, individual and industry average costs are distinguished. Individual cost is the cost of production and sales of products, which are formed at each individual enterprise. The average industry cost is the cost of production and sales of products, which are formed on average for the industry.

According to the calculation methods, the cost is planned, standard and actual. The planned cost is usually understood as the cost determined on the basis of the planned (budget) calculation of individual costs. The normative cost of a product shows the costs of its production and sale, calculated on the basis of current cost rates in force at the beginning of the reporting period. It is reflected in the standard calculations. The actual cost expresses the costs for the manufacture and sale of a certain type of product that have developed in the reporting period, i.e. actual resource costs. The actual cost of production of specific products is recorded in accounting estimates.

According to the degree of completeness of cost accounting, production and commercial costs are distinguished. The cost of production consists of all costs associated with the manufacture of products. Non-manufacturing costs (expenses for containers, packaging, delivery of products to their destination, marketing costs) are taken into account when determining the commercial cost. The sum of production and non-production costs forms the total cost.

The cost price corresponds to accounting costs, i.e. does not take into account implicit (imputed) costs.

The cost of production (works, services) of an enterprise includes the costs associated with the use of natural resources, raw materials, materials, fuel, energy, fixed assets, labor resources and other costs for its production and sale in the production process.

Other cost elements are the following costs and deductions:

for the preparation and development of production;
related to the maintenance of the production process;
related to production management;
to ensure normal working conditions and safety;
for payments provided for by labor legislation for unworked time; payment of regular and additional holidays, payment of working hours for the performance of public duties;
contributions to state social insurance and to the pension fund from labor costs included in the cost of production, as well as the employment fund;
mandatory health insurance contributions.

Basic concepts of the topic

production costs. circulation costs. Net and incremental distribution costs. Alternative costs. Economic and accounting costs. Explicit and implicit costs. Sunk costs. Fixed and variable costs. Gross, average and marginal costs. Manufacturer win. Isocost. Producer balance. scale effect. Positive and negative economies of scale. Long run average costs. short term costs.

test questions

What is meant by production costs?
How are distribution costs divided?
What is the difference between economic and accounting costs? Explain their purpose.
What is the name of the cost, the value of which does not depend on the volume of output?
What are variable costs? Give an example of these costs.
Do current costs include so-called sunk costs?
How are gross (total), average and marginal costs determined and what is their essence?
What is the relationship between marginal cost and marginal productivity (marginal product)?
Why are average and marginal cost curves U-shaped in the short run?
Knowing what costs allows you to determine the amount of the producer's gain (producer's surplus)?
What is meant by the cost of production and what types of it are used in domestic business practice?
What costs (explicit or implicit) does the category "cost" correspond to?
What is the name of the straight line that shows all combinations of resources that require the same cost to use?
What does the descending character of the isocost mean?
How can the equilibrium state of the producer be explained?
If a combination of applied factors minimizes costs for a given output, then it will maximize output for a given amount of costs. Explain this with a graph.
What is the name of the line that determines the long-term path of the company's expansion and passes through the touch points of the isocosts and the corresponding isoquants?
What circumstances cause positive and negative economies of scale?

2.3.1. Production costs in a market economy.

production costs - It is the monetary cost of acquiring the factors of production used. Most cost effective method production is considered to be the one at which production costs are minimized. Production costs are measured in terms of costs incurred.

production costs - costs that are directly related to the production of goods.

Distribution costs - costs associated with the sale of manufactured products.

The economic essence of costs is based on the problem of limited resources and alternative use, i.e. the use of resources in this production excludes the possibility of using it for another purpose.

The task of economists is to choose the most optimal variant of the use of factors of production and minimize costs.

Internal (implicit) costs - this is the cash income that the company donates, independently using its own resources, i.e. These are the returns that could be received by the firm for its own use of resources in the best possible way to use them. Opportunity cost is the amount of money needed to divert a particular resource away from the production of good B and use it to produce good A.

Thus, the costs in cash that the company has carried out in favor of suppliers (labor, services, fuel, raw materials) is called external (explicit) costs.

The division of costs into explicit and implicit there are two approaches to understanding the nature of costs.

1. Accounting approach: production costs should include all real, actual costs in cash (wages, rent, opportunity costs, raw materials, fuel, depreciation, social contributions).

2. Economic approach: production costs should include not only actual costs in cash, but also unpaid costs; related to the missed opportunity for the most optimal use of these resources.

short term(SR) - the length of time during which some factors of production are constant, while others are variable.

Constant factors - the total size of buildings, structures, the number of machines and equipment, the number of firms that operate in the industry. Therefore, the possibility of free access of firms in the industry in the short run is limited. Variables - raw materials, the number of workers.

Long term(LR) is the length of time during which all factors of production are variable. Those. during this period, you can change the size of buildings, equipment, the number of firms. In this period, the firm can change all production parameters.

Cost classification

fixed costs (FC) - costs, the value of which in the short term does not change with an increase or decrease in production volume, i.e. they do not depend on the volume of output.

Example: building rent, equipment maintenance, administration salary.

S is the cost.

The fixed cost graph is a straight line parallel to the x-axis.

Average fixed costs (A F C) – fixed costs per unit of output and is determined by the formula: A.F.C. = FC/ Q

As Q increases, they decrease. This is called overhead allocation. They serve as an incentive for the firm to increase production.

The graph of average fixed costs is a curve that has a decreasing character, because as the volume of production increases, the total revenue grows, then the average fixed costs are an ever smaller amount that falls on a unit of products.

variable costs (VC) - costs, the value of which varies depending on the increase or decrease in the volume of production, i.e. they depend on the volume of output.

Example: the cost of raw materials, electricity, auxiliary materials, wages (workers). The bulk of the costs associated with the use of capital.

The graph is a curve proportional to the volume of output, which has an increasing character. But its nature can change. In the initial period, variable costs grow at a higher rate than the output. As the optimal size of production (Q 1) is reached, there is a relative saving of VC.

Average variable costs (AVC) – the amount of variable costs per unit of output. They are determined by the following formula: by dividing VC by the volume of output: AVC = VC/Q. First, the curve falls, then it is horizontal and sharply increases.

A graph is a curve that does not start from the origin. The general character of the curve is increasing. The technologically optimal output size is reached when AVCs become minimal (p. Q - 1).

Total Costs (TC or C) - a set of fixed and variable costs of the firm, in connection with the production of products in the short run. They are determined by the formula: TC = FC + VC

Another formula (a function of the volume of production): TS = f (Q).

Depreciation and amortization

Wear is the gradual loss of value by capital resources.

Physical deterioration- loss of consumer qualities by means of labor, i.e. technical and production properties.

The decrease in the value of capital goods may not be associated with the loss of their consumer qualities, then they speak of obsolescence. It is due to an increase in the efficiency of production of capital goods, i.e. the emergence of similar, but cheaper new means of labor, performing similar functions, but more advanced.

Obsolescence is a consequence of scientific and technological progress, but for the company it turns into an increase in costs. Obsolescence refers to changes in fixed costs. Physical wear and tear - to variable costs. Capital goods last more than one year. Their cost is transferred to the finished product gradually as it wears out - this is called depreciation. Part of the proceeds for depreciation is formed in the depreciation fund.

Depreciation deductions:

Reflect the assessment of the amount of depreciation of capital resources, i.e. are one of the cost items;

Serves as a source of reproduction of capital goods.

The state legislates depreciation rates, i.e. the percentage of the value of capital goods by which they are considered depreciated in a year. It shows how many years the cost of fixed assets should be reimbursed.

Average total cost (ATC) – the sum of the total costs per unit of production:

ATC = TC/Q = (FC + VC)/Q = (FC/Q) + (VC/Q)

The curve is V-shaped. The output corresponding to the minimum average total cost is called the technological optimism point.

Marginal Cost (MC) – the increase in total costs caused by an increase in production by the next unit of output.

Determined by the following formula: MC = ∆TC/ ∆Q.

It can be seen that fixed costs do not affect the value of MC. And MC depends on the increment in VC associated with an increase or decrease in output (Q).

Marginal cost measures how much it will cost a firm to increase output per unit. They decisively influence the choice of the volume of production by the firm, since. this is exactly the indicator that the firm can influence.

The graph is similar to AVC. The MC curve intersects the ATC curve at the point corresponding to the minimum total cost.

In the short run, the company's costs are both fixed and variable. This follows from the fact that the company's production capacity remains unchanged and the dynamics of indicators is determined by the growth in equipment utilization.

Based on this graph, you can build a new graph. Which allows you to visualize the capabilities of the company, maximize profits and view the boundaries of the existence of the company in general.

For the decision of the company, the most important characteristic is the average values, the average fixed costs fall as the volume of production increases.

Therefore, the dependence of variable costs on the function of production growth is considered.

At stage I, average variable costs decrease, and then begin to grow under the influence of economies of scale. For this period, it is necessary to determine the break-even point of production (TB).

TB is the level of physical volume of sales over the estimated period of time at which the proceeds from the sale of products coincide with production costs.

Point A - TB, where revenue (TR) = TC

Restrictions that must be observed when calculating TB

1. The volume of production is equal to the volume of sales.

2. Fixed costs are the same for any volume of production.

3. Variable costs change in proportion to the volume of production.

4. The price does not change during the period for which the TB is determined.

5. The price of a unit of production and the cost of a unit of resources remains constant.

Law of diminishing returns is not absolute, but relative, and it operates only in the short term, when at least one of the factors of production remains unchanged.

Law: with an increase in the use of one factor of production, while the rest remain unchanged, sooner or later a point is reached, starting from which the additional use of variable factors leads to a decrease in the increase in production.

The action of this law assumes the immutability of the state of technically and technologically production. And so technological progress can change the scope of this law.

The long run is characterized by the fact that the firm is able to change all the factors of production used. In this period variable character of all applied factors of production allows the firm to use the most optimal options for their combination. This will be reflected in the magnitude and dynamics of average costs (costs per unit of output). If the company decided to increase the volume of production, but at the initial stage (ATS) will first decrease, and then, when more and more new capacities are involved in production, they will begin to increase.

The graph of long-term total costs shows seven different options (1 - 7) for the behavior of ATS in the short term, since The long run is the sum of the short runs.

The long run cost curve consists of options called growth steps. In each stage (I - III) the firm operates in the short run. The dynamics of the long-run cost curve can be explained using scale effect. Change by the firm of the parameters of its activities, i.e. the transition from one version of the size of the enterprise to another is called change in the scale of production.

I - on this time interval, long-term costs decrease with an increase in the volume of output, i.e. there is economies of scale - a positive effect of scale (from 0 to Q 1).

II - (this is from Q 1 to Q 2), at this time interval of production, the long-term ATS does not react in any way to an increase in production volume, i.e. remains unchanged. And the firm will have constant returns to scale (constant returns to scale).

III - long-term ATS with an increase in output grow and there is a loss from the increase in the scale of production or negative scale effect(from Q 2 to Q 3).

3. In general, profit is defined as the difference between total revenue and total costs for a certain period of time:

SP = TR –TS

TR ( total revenue) - the amount of cash receipts by the company from the sale of a certain amount of goods:

TR = P* Q

AR(average revenue) is the amount of cash receipts per unit of products sold.

Average revenue is equal to the market price:

AR = TR/ Q = PQ/ Q = P

MR(marginal revenue) is the increase in revenue that arises from the sale of the next unit of production. Under perfect competition, it is equal to the market price:

MR = ∆ TR/∆ Q = ∆(PQ) /∆ Q =∆ P

In connection with the classification of costs into external (explicit) and internal (implicit) different concepts of profit are assumed.

Explicit costs (external) determined by the amount of expenses of the enterprise to pay for the purchased factors of production from the outside.

Implicit costs (internal) determined by the cost of resources owned by the enterprise.

If we subtract external costs from total revenue, we get accounting profit - takes into account external costs, but does not take into account internal ones.

If we subtract internal costs from accounting profit, we get economic profit.

Unlike accounting profit, economic profit takes into account both external and internal costs.

Normal profit appears in the case when the total revenue of an enterprise or firm is equal to the total costs, calculated as alternative. The minimum level of profitability is when it is profitable for an entrepreneur to do business. "0" - zero economic profit.

economic profit(net) - its presence means that resources are used more efficiently at this enterprise.

Accounting profit exceeds the economic one by the amount of implicit costs. Economic profit serves as a criterion for the success of the enterprise.

Its presence or absence is an incentive to attract additional resources or transfer them to other areas of use.

The purpose of the firm is to maximize profit, which is the difference between total revenue and total costs. Since both costs and income are a function of the volume of production, the main problem for the firm is to determine the optimal (best) volume of production. The firm will maximize profit at the level of output at which the difference between total revenue and total cost is greatest, or at the level at which marginal revenue equals marginal cost. If the firm's losses are less than its fixed costs, then the firm should continue to operate (in the short run), if the losses are greater than its fixed costs, then the firm should stop production.

The main thing is the analysis of economic activity. Firm. Production costs and their types

fixed costs

variable costs

Other types of costs

cost theory

Clarifying the definition of concepts

financial balance

Cost types

Cost types

Sources

See also

See what "Costs" are in other dictionaries:

Economic, accounting, opportunity costs.

Fixed, variable, general (gross) costs.

2.3.1. Production costs in a market economy.