Producer costs. What are fixed and variable costs

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COURSE WORK

Production costs and their types

production costs

Introduction

1. Costs and their types

1.2 Explicit and implicit costs

1.3 Fixed costs

1.4 Variable costs

1.5 Marginal costs

2. Estimates of the company’s costs in the short and long term

2.1 Short term

2.2 Long term

Conclusion

Introduction

A major role in a market economy is played by firms—production units that use factors of production to create goods and services and then sell them to other firms, households, or the government. The main motive of any private enterprise is the possibility of making a profit, and the main principle of the activity of each company is to achieve maximum profit. Theory market economy is based on the position that the only motivating motive for the company’s activities is profit maximization. Any enterprise tries not only to sell its goods at a favorable high price, but also to reduce its costs of production and sales of products. If the first source of increasing an enterprise's income largely depends on the external conditions of the enterprise's activities, then the second - almost exclusively on the enterprise itself, more precisely, on the degree of efficiency of the organization of the production process and the subsequent sale of manufactured goods.

The objectives of this course work are to study production costs, their essence and the impact of costs on profit. Production costs are now a rather serious and pressing problem today, because in market conditions the center of economic activity moves to the main link of the entire economy - the enterprise. It is at this level that it is created needed by society products and necessary services are provided. The most qualified personnel are concentrated at the enterprise. Here the issues of economical use of resources, the use of high-performance equipment and technology are resolved. The enterprise strives to reduce production and sales costs to a minimum.

Costs reflect how much and what resources were used by the firm. For example, the elements of costs for the production of products (works, services) are raw materials, wages, etc. The total amount of costs associated with the production and sale of products (works, services) is called cost.

The cost of products (works, services) is one of the important general indicators of the activity of a company (enterprise), reflecting the efficiency of resource use; results of the introduction of new equipment and progressive technology; improvement of labor organization, production and management.

Any company strives to obtain maximum profits at minimum total costs. Naturally, the minimum amount of total costs varies depending on the volume of production. However, the components of total costs react differently to changes in production volume. This applies primarily to the costs of paying service personnel and paying production workers.

The essence of the concept of economic rationalism lies in the assumption that economic entities determine, on the one hand, the benefits from their actions, and on the other hand, the costs necessary to achieve these benefits, means and their comparison in order to maximize benefits for given costs of resources used (or minimize costs required to obtain these benefits). Such a comparison of benefits and costs when making economic decisions allows us to determine the most optimal actions of a given economic entity under given conditions. In this case, benefits are the benefits received by a given economic entity, and costs are the benefits that a given economic entity is deprived of during a given action. Rationality of behavior economic entities will consist in maximizing income from economic activity.

1. Costs and their types

Costs are the monetary expression of the costs of production factors necessary for the enterprise to carry out its production and sales activities.

We say that the costs of production factors are calculated in money, since it is necessary to use general criterion to describe various factors: work time, kg of raw materials, kW of electricity, etc. However, their monetary valuation sometimes has certain difficulties.

Difficulties may also arise when determining the amount spent in this period production factors. In some cases, it is almost impossible to calculate costs with absolute accuracy. How, for example, can you determine which part of equipment purchased a year ago and designed for several years of use will be spent (depreciated) in a given certain period time?

Therefore, we have to admit that when calculating the costs of an enterprise, there is a certain degree of inaccuracy. This inaccuracy can be reduced if, when choosing a calculation method, one keeps in mind its ultimate goal.

In conclusion, we note that the costs described here are understood as costs, according to which we're talking about about the cost method, and since the costs included in the enterprise’s reports are calculated using this method, they are sometimes referred to as accounting costs.

1.1 Opportunity costs

Sometimes it is necessary to look at costs from a different angle, in which case they are defined as opportunity costs.

Opportunity costs are understood as costs and losses of income that arise due to giving preference, if there is a choice, to one of the methods of carrying out business operations while refusing another possible method.

Because opportunity costs involve a choice between two options, they are also called opportunity costs (or opportunity costs).

At the planning stage of a company's economic activity, the problem of choosing between two or big amount opportunities. In this case, it is necessary to plan the costs that will entail giving preference to each of these methods of carrying out economic activities, i.e. we are talking about future costs. Giving preference to one of possible ways, the firm will not only bear the costs associated with this method, but will also lose (give up, lose) something by giving up the alternative opportunity. Therefore, when calculating costs as a result of carrying out business activities in an appropriate way, it is necessary to evaluate them from the point of view of the loss of other opportunities. Let us illustrate our reasoning with an example.

Example. The owner of the company planned the following results for 20...:

Budget (plan) for 20..., dollars

Gross revenue 5,000,000

Costs using the cost method 4 600000 Profit 400000 Own capital (approximately) 1500000

The owner must decide whether he will continue his business activities or sell the enterprise and free up his own capital and his personal workforce. If we consider the costs of the company continuing its business activities, then, in accordance with the cost method, their value will be, as indicated, $4,600,000.

From the point of view of lost opportunities, the costs for the company to continue its business activities will be, in dollars:

Costs according to budget 4,600,000

Loss of income (forecast) due to the loss of the owner of 300,000 of the opportunity to work in another company

Loss of possible interest payments due to 180,000 with the loss of the opportunity to place equity capital of $1,500,000 in any other way (at the rate of 12% per annum)

The profit we previously determined ($400,000) in fact - when calculating costs from the point of view of lost opportunities - turns out not to be a profit, but a loss of $80,000: gross revenue of $5,000,000 - costs of $5,080,000.

A significant part of decisions made in enterprises consists of choosing from alternative possibilities. As follows from the example we have given, it is necessary to take into account lost opportunities. Lost opportunities become the determining factor, other things being equal. This is literal meaning terms such as “lost profit”, in terms of lost opportunities”, “cost of lost opportunities”, “opportunity costs” and so on.

1.2 Explicit and implicit costs

When a firm spends money “out of pocket” (i.e., withdraws money from its bank account) to pay for resources, it spends exactly as much as it takes to keep that resource at its disposal. This kind of opportunity cost, which is associated with paying for resources at the expense of the firm's cash, is called explicit costs. Explicit costs are often divided into direct and indirect;

a) direct costs are directly related to the volume of output and change with the expansion or contraction of production. Such costs include the cost of hiring labor and purchasing raw materials, paying for electrical and thermal energy, etc.;

b) indirect costs do not change depending on the volume of production. Indirect costs consists of overhead costs, rental payments, wages for the entrepreneur, insurance deductions, etc.

Implicit costs. The production process involves not only raw materials and labor, but also capital resources - machines, equipment, workshop and factory buildings, as well as cash entrepreneur. What is the opportunity cost of capital resources?

If a firm owns some capital resource (for example, a truck), then it always has the alternative of renting out this resource to other firms. The greatest lost opportunity to provide a capital resource in this case will be the cost of the lost opportunity of the capital resource (truck). Therefore, if the company "Vega" has a truck that gives it revenue of 1 million rubles during the year, and at the company "Orion" the same truck brings in 1.1 million rubles. revenue, then when using a truck at the Vega company, the opportunity to earn 0.1 million rubles is missed. (This could be done by renting out the truck to Orion). In this regard, 0.1 million rubles. should be attributed to the opportunity costs of the Vega company.

The above example shows that only the entrepreneur himself can estimate the true costs of lost opportunity to use a machine or other capital equipment owned by the company. To do this, he must determine whether there was a more profitable alternative for using capital, as well as the maximum possible, from his point of view, “lost” return on capital to be taken into account as the cost of lost opportunity. Since these types of costs are internal in nature, they are not associated with payments of money from the company’s account and are not taken into account in accounting reports, they are called implicit costs.

1.3 Fixed costs

Fixed costs are understood as those costs, the amount of which in a given period of time does not depend directly on the size and structure of production and sales.

Employee salaries 600,000 Rent of premises 75,000 Miscellaneous 125,000 Depreciation 200,000 Total 10,000,000

During the specified period, it is planned to produce and sell 10,000 units of this product.

Fixed costs can be divided into two groups: residual and starting.

Residual costs include that part of the fixed costs that the enterprise continues to bear, despite the fact that production and sales have been completely stopped for some time.

Start-up costs include that part of the fixed costs that arise with the resumption of production and sales.

There is no clear distinction between residual and starting costs. On whether to attribute this type costs to a particular group is mainly influenced by the period for which production and sales are stopped. The longer the period of business interruption, the lower the residual costs will be, since the opportunities to be released from various contracts (for example, employment contracts and rental contracts) increase.

For example, if fixed costs of $1,500,000 are divided into residual costs of $1,100,000 and starting costs of $400,000, then this ratio can be graphically illustrated as follows (Fig. 1):

Distinguishing between residual and starting costs may be of interest only in cases where the question of the advisability of a complete cessation of economic activity is being considered.

A certain amount of fixed costs is an expression of the fact that a certain potential has been created to achieve a certain volume of production and sales. If economic activity carried out within a given volume, fixed costs will remain unchanged. Expanding capacity, for example in the form of more machinery, more staff and more premises, will entail an increase in fixed costs (depreciation, salaries and rent). This growth will occur in the form of leaps, because the listed production factors can only be acquired in certain - indivisible - quantities.

If we are talking, for example, about staff reductions in connection with the curtailment of production, then this will be possible after a certain time has passed, corresponding, among other things, to the period for issuing notices of dismissal. Such costs - in our case for the payment of salaries - will be called reversible.

The situation is different with the reduction of that part of fixed costs that is associated with the fixed assets of the enterprise, for example, depreciation of machinery and equipment. Of course, you can sell part of the machine park. However, it often happens that when one enterprise in a given industry has excess production capacity, other firms that would otherwise be potential buyers also have the same capacity. This situation leads to the fact that prices are very low, and this entails big losses for the company selling them, in the form of extraordinary write-offs (depreciation). Such costs - in this case, depreciation of machinery, etc. - are called (in general) irreversible. If expanding the firm's capabilities leads to an increase in sunk costs, then this is much more risky than if these costs were reversible.

1.4 Variable costs

Variable costs are understood as costs, the total value of which for a given period of time is directly dependent on the volume of production and sales, as well as their structure in the production and sale of several types of products.

Examples of variable costs manufacturing plant are the costs of acquiring raw materials, labor and energy needed in the production process.

In trading enterprises, the most significant variable costs are the costs of purchasing goods. Other variable costs may include packaging costs and salesperson commissions.

Proportional variable costs mean variable costs, which change in relatively the same proportion as production and sales.

Digressive variable costs mean variable costs that change in a relatively smaller proportion than production and sales.

Progressive variable costs are understood as variable costs that change in a relatively greater proportion than production and sales.

Table 1. Progressive variable costs

The gross costs of an enterprise are understood as the sum of its fixed and variable costs.

1.5 Marginal costs

At enterprises, the question often arises of how much the expansion or reduction of production and sales can justify itself. When solving these issues, it is important to be able to calculate the value of the costs of growth when expanding economic activity and, accordingly, the costs of reduction when it is curtailed. Such costs of growth and contraction are expressed general concept“actually marginal costs” (SPRIZ).

The actual marginal cost is understood as a change in the value of gross costs that occurs as a result of a change in the amount of production and sales by 1 unit.

Often, changes in costs are planned in accordance with much larger changes in production and sales volumes. In such cases, it is not possible to calculate the actual marginal costs. However, it is possible to calculate a value that is close in value to the actual marginal costs - the so-called averaged marginal costs (hereinafter referred to as marginal costs).

Marginal cost means average value costs of growth or costs of reduction per unit of production arising as a result of changes in production and sales volumes by more than 1 unit.

2. Estimation of company costs in the short and long term

When carrying out his activities, an entrepreneur has to make a lot of decisions: how much raw material to purchase, how many workers to hire, what technological process to choose, etc. All these decisions can be conditionally combined into three groups:

1) how in the best possible way organize production at existing production facilities;

2) what new production capacities and technological processes choose taking into account the achieved level of development of science and technology;

3) how to best adapt to discoveries and inventions that make a turning point in technical progress.

The period of time during which a company solves the first group of issues is called a short-term period in economics, the second - long-term, and the third - very long-term. The use of these terms should not be associated with a specific period of time. In some industries, let's say energy, the short-term period lasts many years, in another, for example, aerospace, the long-term period can take only a few years. The “length” of the period is determined only by the corresponding group of issues being resolved.

The behavior of a company is fundamentally different depending on which of the listed periods it operates in. In the short run, individual factors of production do not change; they are called constant (fixed) factors. These typically include resources such as industrial building, machines, equipment. However, this could also be land, the services of managers and qualified personnel. Economic resources that change during the production process are considered variable factors. In the long run, all input factors of production may change, but the basic technologies remain unchanged. Over a very long period, the underlying technologies may also change.

Let us dwell on the company's activities in the short term.

2.1 Short term

Total costs (total cost - TC) - the total costs of producing a certain volume of products. Since in the short term a number of input factors of production (primarily capital) do not change, some part of the total costs also does not depend on the number of units of variable resource used and on the volume of output of goods and services. Total costs that do not change as production increases in the short run are called total fixed costs (TFC); total costs that change their value with an increase or decrease in output constitute total variable costs (total variable cost - TVC). Consequently, for any production volume Q, total costs are the sum of total fixed and total variable costs:

Fixed costs include mainly explicit indirect costs:

interest on loans taken, depreciation charges, insurance premiums, rent, manager's salary. For example: when a building is built or leased, when equipment is purchased, the entrepreneur assumes that they will serve him for a certain number of years before they need to be replaced with new ones. So, if it is known that a building lasts on average 40 years, then each year 1/40 of the cost of the building is charged as the firm's fixed costs. This type of cost is called depreciation and is used to cover the wear and tear of the building. If it is known that this type of equipment lasts 10 years, then every year the entrepreneur charges 1/10 of the cost of the equipment as the firm’s fixed costs. Equipment depreciation costs are also used to cover equipment wear and tear.

The service life of machinery and equipment depends to a greater extent on the pace of technological progress than on actual physical wear and tear.

If an industry is undergoing rapid development and the technology in it is changing rapidly, fixed capital becomes obsolete and requires significant updating ahead of schedule its physical wear and tear, i.e. obsolescence is observed.

These types of costs will be present even if the company for some reason stops producing goods (rent for the premises used or debt to the bank must be paid in any case, regardless of whether the company produces products or not).

Variable costs are usually calculated per unit of output produced. This type of cost is also called direct or “optional” costs. Variable costs include the cost of paying employees, raw materials, auxiliary materials, fuel, electricity, etc.

The company, wanting to achieve maximum profit, seeks to reduce costs per unit of production. In this regard, it is important to introduce the concept of average costs. Average costs (average total cost - ATC or simply average cost - AC) is the value of the total costs per unit of output. If Q is the quantity of goods produced by the firm, then

Average fixed (AFC) and average variable (AVC) costs are calculated using the formulas:

AFC = TFC / Q AVC = TVC / Q

Obviously, ATC=AFC+AVC. Great importance have marginal costs.

Marginal cost (MC) is a value showing the increase in total costs when the volume of output changes by one additional unit:

Since fixed costs do not change and do not depend on the value of Q, a change in total costs, i.e. TS is determined by changes only in variable costs:

TC = TVC and MC = TVC / Q.

2.1.1 Cost curves in the short run

Knowing the prices of resources and the dependence of production volumes on the amount of resources used, it is possible to calculate production costs. Let us assume that in the considered example TFC = 1 million rubles, and the salary of one worker is 100 thousand rubles. Substituting these values in the table, we will find the values of TC, TVC, ATC, AVC, AFC and MC and construct the corresponding graphs.

This follows from the fact that

Since the release of an additional unit of goods is associated with an increase in total costs, the TC curve always has an “ascending” character for any value of Q.

The average and marginal cost curves have a different character (see Fig. 2). On entry level(up to the value qa, point, and the MC curve) the values of marginal costs decrease, and then begin to constantly increase. This occurs due to the law of diminishing returns to resources.

As long as marginal costs are less than average variable costs, the latter will decrease, and when MC exceeds AVC, average costs will increase. Since fixed costs do not change, the total costs of ATC decrease while MC is less than ATC, but they will begin to increase as soon as MC exceeds ATC. Consequently, the MC line intersects the AVC and ATC curves at their minimum points. As for the average fixed cost curve, since AFC=TFC/Q, TFC=const, ATC values are constantly decreasing with increasing Q, and the AFC curve has the form of a hyperbola.

2.2 Long term

As we have already noted, any company seeking to maximize profits must organize production in such a way that costs per unit of output are minimal. This means that the long-term decision made should be focused on the task of minimizing costs. We will, as in the case of the short-term period, assume that prices for economic resources remain unchanged. In addition, for simplicity, we will assume that only two factors are used in production - labor and capital, and in the long run both of them are variables. Let's make one more assumption: first we fix a certain volume of production and try to find the optimal ratio of labor and capital for a given volume of production. When we understand the algorithm for optimizing the use of two factors for a certain volume of production, we will be able to find the principle of minimizing costs for any volume of output.

So, a certain volume of output q is produced at a given ratio of labor and capital. Our task is to figure out how to replace one factor of production with another in order to minimize costs per unit of output. The firm will replace labor with capital (or vice versa) until the value of the marginal product of labor per one ruble spent on the acquisition of this factor becomes equal to the ratio of the marginal product of capital to the price of a unit of capital, that is:

mpk/pk=mpl/pl (2)

where МРl and МРк are the marginal product obtained as a result of attracting an additional unit of labor or capital to production, Рк and Рl are the prices of a unit of capital and labor.

To understand the validity of this statement, consider this with an example: a unit of labor costs 250 rubles, and a unit of capital costs 100 rubles. (per month). Let the addition of one unit of capital increase total output by 10 units (i.e., the marginal product of capital MPk = 10), and the marginal product of labor equal to 5 units. Then in equality (2) left side becomes larger than the right:

It follows from this that if an entrepreneur refuses two

units of labor, he will reduce production by 10 units and free up 500 rubles. With this money, he can hire one additional unit of capital (spend 100 rubles on this), which will compensate for the loss of production (give 10 units of production). This means that by replacing two units of labor with one unit of capital (for a certain volume of output), the firm can reduce total costs by 400 rubles. It should, however, be taken into account that a decrease in the volume of labor will invariably lead to an increase in the marginal product of labor (in accordance with the law of diminishing returns), and an increase in the amount of capital used, on the contrary, will cause a fall in the MPK. As a result, the left and right sides of equality (2) will become equal.

Equality (2) can be written in the following form:

MRK / mpl= RK / pl (3)

Since prices for input factors of production do not change under our conditions, then for the example discussed above Pk I pl = 0.4

Then the ratio MRk / MRl should be equal to 0.4 for the selected volume of output.

In the long run, for a given volume of production, the firm achieves equilibrium in the use of input factors of production and minimizes costs when any replacement of one factor by another does not lead to a reduction in unit costs. This happens when equality (2) or its equivalent equality (3) is satisfied.

Equality (2) and (3) allows us to determine the firm’s actions if the relative prices of resources begin to change. If, suppose, the relative price of labor increases, then the left side of (2) will become larger than the right, and this will force the firm to use less of the more expensive resource - labor (which will cause an increase in MPl) and more of a relatively cheap resource - capital (thereby reducing MPk ) * As a result, equality (2) will be satisfied again.

So, we know how to minimize unit costs for a given production volume. And when the company begins to reduce or increase output finished products? If prices for resources are given and remain unchanged, then for each volume of production, using equalities (2) and (3), we can find the optimal combination of labor and capital from the point of view of minimizing average costs. Let us plot on the graph (Fig. 3) the considered output volumes along the x-axis, and the values of average costs along the y-axis. For each volume of production, we indicate a point on the coordinate plane, the ordinate of which is equal to the average costs at the optimal ratio of labor and capital for a given volume of capital" (points A, B, C). If we connect all these points with one line, we obtain the curve of average costs in the long run period (LRAC).

As can be seen from Fig. 3, the LRAC curve in the section from 0 to A decreases (i.e., with increasing output, average costs fall), and then with a further increase in output, average costs begin to increase again. If we assume that prices for economic resources remain unchanged, then the initial decrease in average costs in the long run is explained by the fact that with the expansion of production, the growth rate of finished products begins to outpace the growth rate of costs for input factors of production.

This occurs due to the so-called “economies of scale” effect. Its essence is that on initial stage an increase in the number of input factors of production makes it possible to increase the possibility of specialization of production and distribution of labor. A decrease in average costs can also be caused by the use of more productive equipment and a decrease in the number of employees.

However, further expansion of production will invariably lead to the need for additional management structures (heads of departments, shifts, workshops), administrative costs will increase, it will be more difficult to manage production, and failures will become more frequent. This will cause production costs to increase and the LRAC curve will increase.

The LRAC curve divides the coordinate plane into two parts: for all points below the LRAC curve (for example, point m), the corresponding volume of production qm for the firm is unattainable at existing prices for input resources (i.e., the firm will never be able to achieve the value of average costs at output volume qm was equal to Cm). For points above the LRAC curve (point n), volume qn is achievable (but will require large average costs).

How are the short- and long-run average cost curves related? Let's consider point C on the LRAC curve. As we just said, at this point the lowest costs Cc per unit of output are achieved (i.e., the optimal ratio of labor and capital) with a production volume of qc units. To move along the LRAC curve from point C to point B, a firm must increase its amount of capital, and economies of scale take time to take effect. But after all, at some point in its activity, the company does not change machines and equipment, i.e., we can assume that it operates in the short term. Let the company fix its capacity and the amount of capital (in the short term it becomes a constant factor) corresponds to point C of the LRAC curve. Having one fixed factor of production and operating in the short term (SRAC1 curve), the company can more effectively use the potential opportunities for economies of scale - quickly manage variable factors of production, quickly introduce a progressive division of labor, and improve the management of the company. As a result, a firm with the same production capacity can increase production volume to a value of qD while simultaneously reducing average costs to Cd, i.e., act more efficiently.

However, when planning activities for the future, an entrepreneur must assess the potential opportunities for expanding production. If he takes a risk and increases the amount of capital, so that the new optimal ratio of labor and capital is achieved at point B, then at first he may face losses - the volume of production will be reduced to qb. But then, using the potential opportunities for economies of scale in the next short-term period (SRAC2 curve), the firm will achieve an increase in production to the level qe while simultaneously reducing average variable costs.

This is where the opportunity costs associated with entrepreneurial risk: the entrepreneur who was afraid to take a risk and expand production missed out on a benefit equal to (qe - qD) x (CD - Ce), i.e., the product of the resulting increase in production (qe - qd) and the reduction in average costs (Cd - Ce ).

An entrepreneur must take a risk and expand production every time he is confident that the potential for expansion effects can reduce average costs while increasing production. At point A, a global minimum occurs, where both the corresponding SRAC3 curve and the LRAC curve itself reach lowest values. Any attempt by a firm to achieve simultaneous expansion of production and reduction of average costs will be unsuccessful. Economies of scale will exhaust themselves, and the entrepreneur who takes the risk of further expansion of production will fail. This means that at point A the company optimizes its activities in the long term.

Conclusion

Any market consists of buyers who want to purchase goods and suppliers who want to sell goods. Each of these parties strives to satisfy its own needs as fully as possible at any price set for the product, however, each of them is at the mercy of its own limiting factor: buyers are constrained by the limitations of their budget, and suppliers by the limitations of their technological capabilities.

The presence of these constraining factors leads to the fact that, if all other conditions remain unchanged, but the price of a product changes, supply and demand will change. The characteristic demand curve, which reflects the dependence of the quantity of a good that buyers are willing to buy on the price of that good, is decreasing. The characteristic supply curve, reflecting the dependence of the quantity of goods that suppliers are willing to sell on the price of this product, is increasing. The specific position of the demand curve and supply curve in the axes (price, quantity) is determined by a number of non-price parameters of demand and non-price parameters of supply. The degree of sensitivity of changes in supply and demand to changes in the price of a product or any non-price parameter is usually described by the elasticity coefficient. If the existing price on the market for a given product is lower or higher than the price for which the volume of demand coincides with the volume of supply, then a shortage or surplus of the product is formed in the market, accordingly, in the presence of which the monitoring by buyers and suppliers of their interests in maximally satisfying their needs leads to a change the existing price in the direction of the equilibrium price, which does not exclude the possibility of fluctuations in the price of a product around the equilibrium value if the initial price adjustments are too large.

In this work, due to the limitations of the topic, many specific situations in which the interaction and structure of supply and demand naturally have their own characteristics have been left behind the scenes. For example, for the market for resources used to produce another product, the profit from subsequent deliveries is fundamental finished products, and increasing the consumption of resources (i.e., the value of demand for them) is advisable only as long as the increase in their total value due to the purchase of an additional unit of the resource is less than the increase in income from the sale of an additional quantity of finished products supplied thanks to this additional unit of the purchased resource. To find out how the market (industry) long-term supply curve will behave, the influence of industry growth on the prices of resources used in this industry becomes fundamental; if, due to its increased size, the industry is able to acquire the necessary resources at more low prices, then the curve

long-term industry supply will decrease. Or, for example, when determining the nature of the aggregate demand curve, i.e. volumes of national production that all consumers in the country are willing to buy at different aggregate price levels, the impact of changes in the price level in the country on interest rates, consumer inflation expectations and demand for imported goods. When determining the nature of the aggregate supply curve, the determining factor becomes the presence in the country of free for additional use resources.

Since the purpose of this work was a general description of the economic content of demand, supply and their interaction, the study of demand, supply and their interaction was carried out using the example of the most general simplest situation, and the above-mentioned and other specific situations may be the subject of a separate study.

List of used literature

1. Civil Code of the Russian Federation Part I of November 30, 1994 No. 51-FZ (as amended by Federal Laws of February 20, 1996 No. 18-FZ, of August 12, 1996 No. 111-FZ, of July 8, 1999 No. 138 Federal Law, of April 16. 2001 N 45-FZ, dated 05.15.2001 N 54-FZ).

2. Civil Code of the Russian Federation, Part II of January 26, 1996 No. 14-FZ (as amended by Federal Laws of August 12, 1996 No. 110-FZ, No. 133-FZ of October 24, 1997, No. 213 Federal Law of December 17, 1999).

3. Tax Code of the Russian Federation, Part I of July 31, 1998 No. 146-FZ (as amended by Federal Laws of July 9, 1999 No. 154-FZ, of January 2, 2000 No. 13-FZ, of August 5, 2000 No. 118-FZ (as amended) 03/24/2001)).

4. Tax Code of the Russian Federation, Part II of August 5, 2000 No. 117-FZ (as amended by Federal Laws of December 29, 2000 No. 166-FZ, No. 71-FZ of May 30, 2001, No. 118 Federal Law of August 7, 2001).

5. Abryutina M.S., Grachev A.V. Analysis of the financial and economic activities of an enterprise: Educational and practical manual. M.: Publishing house "Delo and Service", 2001.

6. Bethge Jörg. Balance study: Transl. from German/Scientific editor V. D. Novodvorsky. M.: Accounting, 2000.

7. http://lib.vvsu.ru/books/Bakalavr02/page0089.asp

8. www.ido.edu.ru/ffec/econ/ec5.html

9. Bykardov L.V., Alekseev P.D. Financial and economic condition of the enterprise: Practical guide. - M. PRIOR Publishing House, 2000.

10. The use of computer technology in accounting: Proc. allowance / M.V. Drutskaya, A.V. Ostroukhov, V.I. Ostroukhov; Ross. in absentia Institute of Textiles. and light industry. -- M., 2000.

12. Kondrakov N.P. Accounting: Textbook. INFRA - M, 2002.

13. Russian statistical yearbook, 2001.

14. Organization management: Textbook / Ed. A.G. Porshneva, Z.P. Rumyantseva, N.A. Solomatina. - M.: INFRA-M, 2000.

15. Finance, money circulation and credit: Textbook / Ed. prof. N.F. Samsonova. - M.: INFRA-M, 2001

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10.11 Types of costs

When we looked at the periods of production of a firm, we said that in the short run the firm can change not all the factors of production used, while in the long run all factors are variable.

It is precisely these differences in the possibility of changing the volume of resources when changing production volumes that forced economists to divide all types of costs into two categories:

fixed costs;
variable costs.

Fixed costs(FC, fixed cost) are those costs that cannot be changed in the short term, and therefore they remain the same with small changes in the volume of production of goods or services. Fixed costs include, for example, rent for premises, costs associated with maintaining equipment, payments to repay previously received loans, as well as all kinds of administrative and other overhead costs. Let's say it is impossible to build a new oil refining plant within a month. Therefore, if next month an oil company plans to produce 5% more gasoline, then this is only possible on existing production facilities and with existing equipment. In this case, a 5% increase in output will not lead to an increase in equipment maintenance and maintenance costs. production premises. These costs will remain constant. Only the amounts of wages paid, as well as the costs of materials and electricity (variable costs) will change.

The fixed cost graph is a horizontal line.

Average fixed costs (AFC, average fixed cost) are fixed costs per unit of output.

Variable costs(VC, variable cost) are those costs that can be changed in the short term, and therefore they grow (decrease) with any increase (decrease) in production volumes. This category includes costs for materials, energy, components, wages.

Variable costs show the following dynamics depending on the volume of production: up to a certain point they increase at a killing pace, then they begin to increase at an increasing pace.

Schedule variable costs looks like this:

Average variable costs (AVC, average variable cost) are variable costs per unit of output.

The standard Average Variable Cost graph looks like a parabola.

The sum of fixed costs and variable costs is total costs (TC, total cost)

TC = VC + FC

Average total costs (AC, average cost) are the total costs per unit of production.

Also, average total costs are equal to the sum of average fixed and average variable costs.

AC = AFC + AVC

AC graph looks like a parabola

A special place in economic analysis occupy marginal costs. Marginal cost is important because economic decisions typically involve marginal analysis of available alternatives.

Marginal cost (MC, marginal cost) is the increment in total costs when producing an additional unit of output.

Since fixed costs do not affect the increment in total costs, marginal costs are also an increment in variable costs when producing an additional unit of output.

As we have already said, formulas with derivatives in economic problems are used when smooth functions are given, from which it is possible to calculate derivatives. When we are given individual points (discrete case), then we should use formulas with increment ratios.

The marginal cost graph is also a parabola.

Let's draw a graph of marginal costs together with graphs of average variables and average total costs:

The above graph shows that AC always exceeds AVC since AC = AVC + AFC, but the distance between them decreases as Q increases (since AFC is a monotonically decreasing function).

The graph also shows that the MC graph intersects the AVC and AC graphs at their minimum points. To justify why this is so, it is enough to recall the relationship between average and maximum values already familiar to us (from the “Products” section): when the maximum value is below the average, then the average value decreases with increasing volume. When the marginal value is higher than the average value, the average value increases with increasing volume. Thus, when the marginal value crosses the average value from bottom to top, the average value reaches a minimum.

Now let’s try to correlate the graphs of general, average, and maximum values:

These graphs show the following patterns.

Costs You can call any expenditure of resources accountable. Those costs that are directly necessary for the production of a good or service are considered production costs.

The essence of costs is intuitively clear to almost everyone, but a significant part of the efforts of economic science is spent on their assessment, calculation and distribution. This happens because assessing the effectiveness of any process is a comparison of the amount of expenses incurred with the result obtained.

For economic theory, the study of costs means their determination and classification by type, origin, items and processes. Economic practice puts specific numbers into the formulas proposed by the theory and gets the desired result.

Concept and classification of costs

The simplest way to study costs is to add them up. The resulting amount can be subtracted from the revenue to determine the size; you can compare the amounts of expenses for similar processes to determine more economical option etc.

To model economic situations, create formulas, evaluate business processes and their results, costs must be classified, i.e. divided according to certain characteristics and combined into typical groups. There is no rigid classification system; it is more convenient to consider costs based on the needs of a particular study. But some frequently used options can be considered a kind of rules.

Especially often costs are divided into:

Constant - independent of the volume of production in a specific period;
Variables - the size of which is directly tied to the amount of output.

Note that this division is valid only when considering a relatively short-term period. In the long run, all costs tend to become variable.

In relation to the main production process It is customary to allocate costs:

For main production;
For auxiliary operations;
For non-production expenses, losses, etc.

If we imagine costs as economic elements, then we can distinguish from them:

Expenses for main production (raw materials, energy, etc.);
Labor costs;
Social contributions from wages;
Depreciation deductions;
Other expenses.

More thorough in a detailed way To find out the concept, composition and types of production costs will be to prepare a cost estimate for the enterprise.

According to costing items, costs are divided into:

Purchased raw materials and materials;
Semi-finished products, components, production services;
Energy;
Labor costs for key production personnel;
Tax deductions from wages in this category;
from the same salary;
Costs of preparation for production development;
Shop costs - a category of costs for operations associated with a specific production unit;
General production costs are expenses of a production nature that cannot be fully and accurately attributed to specific departments;
General expenses - expenses associated with the provision and maintenance of the entire organization: management, some support services;
Commercial (non-production) expenses - everything related to advertising, product promotion, after-sales service, maintaining the image of the enterprise and products, etc.

Another important type of cost, regardless of the analysis criteria, is average costs. This is the amount of costs per unit of output; to determine it, the volume of costs is divided by the number of units produced.

And the cost of each new unit of production when the volume of output changes is called marginal cost.

Knowing the size of average and marginal costs is necessary for making effective solutions about the optimal output volume.

Methods for calculating costs

Formulas and graphs

A general idea of the cost classification system and the presence of expenses in certain areas does not give practical results when assessing specific situation. Moreover, even building models without exact numbers requires tools to illustrate the dependencies between certain elements of the cost system and their impact on the final result. Formulas and graphic images help to do this.

By putting the appropriate values into the formulas, it becomes possible to calculate a specific economic situation.

The number of costing formulas is difficult to determine precisely; each formula appears along with the situation it describes. An example of one of the most common would be the expression of total costs (calculated in the same way as total). There are several variations of this expression:

Total costs = fixed costs + variable costs;

Total costs = costs for main processes + costs for auxiliary operations + other costs;

In the same way, you can imagine the total costs determined by costing items; the only difference will be in the name and structure of the cost items. At the right approach and calculation application to the same situation different types formulas for calculating the same value should give the same result.

To represent the economic situation in graphical form, you should place points corresponding to the cost values on the coordinate grid. By connecting such points with a line, we get a graph of a certain type of cost.

This is how the graph can illustrate the dynamics of changes in marginal costs (MC), average total costs (ATC), average variable costs (AVC).

Production costs- this is a set of expenses that enterprises incur in the process of production and sales of products.

Production costs can be classified according to many criteria. From the firm's perspective, individual production costs are identified. They directly take into account the expenses of the business entity itself. Entrepreneurial firms have different individual production costs. In some cases, industry average 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 perspective of the entire national economy.

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

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

Expenses on advertising, rental of retail premises, costs of maintaining sellers and sales agents, and accountants form pure distribution costs, which do not create new value.

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

From the standpoint of an individual firm, economic costs are the costs that the firm must bear in favor of the supplier of inputs in order to divert them from use in alternative industries. Also, costs can be both external and internal. Costs in in cash expenses that a company carries out 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 suppliers are not the owners of this company. Explicit costs are fully reflected in the accounting records of enterprises, and therefore they are called accounting costs.

At the same time, the company can use its own resources. In this case, costs are also inevitable. The costs of one's own resource and one that is independently used are unpaid, or internal, implicit (implicit) costs. The company considers them as equivalent to those cash payment which would be received for an independently used resource with its most optimal use.

Implicit costs cannot be identified with the so-called sunk costs. Sunk costs are costs that are incurred by the company once and cannot be returned under any circumstances. Sunk costs are not considered alternative costs; they are not taken into account in the company's current costs 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 term are divided into constant and variable, and in the long term 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 products are 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 (payment of rent for land, equipment, depreciation charges for buildings and equipment, insurance premiums, property tax, salaries to senior management personnel, payments on bonds, etc.) In the future, production volumes may change, and fixed costs will remain unchanged. Collectively, fixed costs are the so-called overhead costs.

Variable costs(TVC) - those costs that change with changes in the quantity of products produced. Variable costs include expenses for raw materials, materials, fuel, electricity, payment for transport services, payment for most of the labor resources (salaries).

They also distinguish between total (total), average and marginal costs.

Cumulative, or total, 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 production. There are average total (ATC), average variable (AVC) and average fixed (AFC) costs.

Average total costs(ATC) is the total cost per unit and is usually used for comparison with price. They are defined as the quotient of total costs divided by the number of units produced:

Average variable costs(AVC) is a measure 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 production: AVC=TVC/Q.

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

In the theory of firm costs important role belongs to marginal cost (MC) - the cost of producing an additional unit of output in excess of the quantity already produced. MC can be determined for each additional unit of production by attributing changes in the amount of total costs to the number of units of production that caused these changes: MC=ΔTC/ΔQ.

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

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

The dynamics of the long-run average total cost curve can be explained using the so-called economies of scale.

As the size of the enterprise grows, it can be distinguished whole line factors determining the reduction of average production costs, i.e. giving positive economies of scale:

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

Diseconomies of scale mean that over time, expansion of firms can lead to negative economic consequences and, therefore, to increased unit production costs. The main reason for the occurrence of negative economies of scale is associated with certain management difficulties.

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

Based on the level and location of cost formation, a distinction is made between individual and industry average costs. Individual cost is the cost of production and sales of products that accumulate at each individual enterprise. Industry average cost is the cost of production and sales of products, which is the average for the industry.

According to the calculation methods, the cost is divided into planned, standard and actual. Planned cost usually means cost determined on the basis of planned (estimated) calculation of individual costs. The standard cost of a product shows the costs of its production and sale, calculated on the basis of current cost standards in effect at the beginning of the reporting period. It is reflected in standard calculations. The actual cost expresses the costs incurred during the reporting period for the production and sale of a certain type of product, i.e. actual resource costs. The actual cost of production of specific products is recorded in reporting estimates.

Based on the degree of completeness of cost accounting, a distinction is made between production and commercial costs. Production cost form all costs associated with the manufacture of products. Non-production costs (costs of containers, packaging, delivery of products to the destination, sales costs) are taken into account when determining commercial costs. The sum of production and non-production costs forms the total cost.

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

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

Other elements of cost are the following costs and deductions:

for preparation and development of production;
related to the maintenance of the production process;
related to production management;
for ensuring normal conditions labor and safety;
for payments provided for by labor legislation for unworked time; payment for regular and additional vacations, payment for working time for performing government 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;
contributions for compulsory health insurance.

Basic concepts of the topic

Production costs. Distribution costs. Clean and additional costs appeals. Opportunity costs. Economic and accounting costs. Explicit and implicit costs. Sunk costs. Fixed and variable costs. Gross, average and marginal costs. Manufacturer's gain. Isocosta. Producer equilibrium. Effect of scale. Positive and negative economies of scale. Long-run average costs. Short-term costs.

Control 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 are the costs called, the value of which does not depend on the volume of output?
What are variable costs? Give an example of these costs.
Are so-called sunk costs taken into account in current 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 us to determine the amount of gain for the manufacturer (surplus for the manufacturer)?
What is meant by product cost and what types of it are used in domestic business practices?
What costs (explicit or implicit) does the category “cost” correspond to?
What is the name of a straight line that shows all combinations of resources whose use requires the same costs?
What does the descending nature of the isocost mean?
How can we explain the state of equilibrium of the producer?
If the combination of factors applied minimizes costs for a given amount of 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 defines the long-term path of expansion of the company and passes through the tangency points of the isocosts and the corresponding isoquants?
What circumstances cause positive and diseconomies of scale?

A company's costs are the totality of all costs of producing a product or service, expressed in monetary terms. In Russian practice they are often called cost. Each organization, regardless of what type of activity it is engaged in, has certain costs. The firm's costs are the amounts it pays for advertising, raw materials, rent, labor, etc. Many managers try to provide at the lowest possible costs effective work enterprises.

Let's consider the basic classification of a company's costs. They are divided into constants and variables. Costs can be considered in the short term and the long term ultimately makes all costs variable, since during this time some may end major projects and others will begin.

The company's costs in the short term can be clearly divided into fixed and variable. The first type includes costs that do not depend on production volume. For example, deductions for depreciation of structures, buildings, insurance premiums, rent, salaries of managers and other employees related to senior management, etc. Fixed costs of a company are mandatory costs that an organization pays even in the absence of production. on the contrary, they directly depend on the activities of the enterprise. If production volumes increase, then costs increase. These include costs of fuel, raw materials, energy, transport services, wages of the majority of the enterprise’s employees, etc.

Why does a businessman need to divide costs into fixed and variable? This moment has an impact on the functioning of the enterprise in general. Since variable costs can be controlled, a manager can reduce costs by changing production volumes. And since the overall costs of the enterprise are ultimately reduced, the profitability of the organization as a whole increases.

In economics there is such a thing as opportunity costs. They are due to the fact that all resources are limited, and the enterprise has to choose one way or another to use them. Opportunity costs are lost profits. The management of the enterprise, in order to receive one income, deliberately refuses to receive other profits.

A firm's opportunity costs are divided into explicit and implicit. The first are those payments that the company would pay to suppliers for raw materials, for additional rent, etc. That is, their organization can guess in advance. These include cash costs for renting or purchasing machines, buildings, machinery, hourly wages of workers, payment for raw materials, components, semi-finished products, etc.

The implicit costs of a firm belong to the organization itself. These cost items are not paid to third parties. This also includes profits that could have been received on more favorable terms. For example, the income that an entrepreneur can receive if he works in another place. Implicit costs include rental payments for land, interest on capital invested in securities, and so on. Every person has this type of expense. Consider an ordinary factory worker. This person sells his time for a fee, but he could earn a higher salary in another organization.

So, in a market economy, it is necessary to strictly monitor the organization’s expenses, it is necessary to create new technologies, and train employees. This will help improve production and plan costs more effectively. This means it will lead to an increase in the company’s income.

Producer costs. What are fixed and variable costs

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Introduction

Conclusion

Introduction

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10.11 Types of costs

Concept and classification of costs

Methods for calculating costs

Formulas and graphs