Cost term. What are fixed and variable costs

Costs(cost) - the cost of everything that the seller has to give up in order to produce the goods.

To carry out its activities, the company incurs certain costs associated with the acquisition of necessary production factors and the sale of manufactured products. The valuation of these costs is the firm's costs. Most economically effective method production and sale of any product is considered to be such that the company’s costs are minimized.

The concept of costs has several meanings.

Classification of costs

• Individual- costs of the company itself;
• Public- the total costs of society for the production of a product, including not only purely production, but also all other costs: protection environment, training of qualified personnel, etc.;
• Production costs- these are costs directly associated with the production of goods and services;
• Distribution costs- related to the sale of manufactured products.

Classification of distribution costs

• Additional costs circulation includes the costs of bringing manufactured products to the final consumer (storage, packaging, packing, transportation of products), which increase the final cost of the product.
• Net distribution costs- these are costs associated exclusively with acts of purchase and sale (payment of sales workers, keeping records of trade operations, advertising costs, etc.), which do not form a new value and are deducted from the cost of the product.

The essence of costs from the perspective of accounting and economic approaches

• Accounting costs- this is a valuation of the resources used in the actual prices of their sale. The costs of an enterprise in accounting and statistical reporting appear in the form of production costs.
• Economic understanding of costs is based on the problem of limited resources and the possibility of their alternative use. Essentially all costs are opportunity costs. The economist's task is to choose the most optimal option for using resources. The economic costs of a resource chosen for the production of a product are equal to its cost (value) under the best (of all possible) use case.

If an accountant is mainly interested in assessing the company’s past activities, then an economist is also interested in the current and especially predicted assessment of the firm’s activities, searching for the most optimal option use of available resources. Economic costs are usually greater than accounting costs - this is total opportunity costs.

Economic costs, depending on whether the firm pays for the resources used. Explicit and implicit costs

• External costs (explicit)- these are costs in cash that a company makes in favor of suppliers of labor services, fuel, raw materials, auxiliary materials, transport and other services. In this case, the resource providers are not the owners of the firm. Since such costs are reflected in the balance sheet and report of the company, they are essentially accounting costs.
• Internal costs (implicit)— these are the costs of your own and independently used resource. The company considers them as equivalent to those cash payments, which would be received for an independently used resource with its most optimal use.

Let's give an example. You are the owner of a small store, which is located on premises that are your property. If you didn’t have a store, you could rent out this premises for, say, $100 a month. These are internal costs. The example can be continued. When working in your store, you use your own labor, without, of course, receiving any payment for it. With an alternative use of your labor, you would have a certain income.

The natural question is: what keeps you as the owner of this store? Some kind of profit. The minimum wage required to keep someone operating in a given line of business is called normal profit. Lost income from the use of own resources and normal profit in total form internal costs. So, from the standpoint of the economic approach, production costs should take into account all costs - both external and internal, including the latter and normal profit.

Implicit costs cannot be identified with the so-called sunk costs. Sunk costs- these are costs that are incurred by the company once and cannot be returned under any circumstances. If, for example, the owner of an enterprise incurs certain monetary expenses to have an inscription made on the wall of this enterprise with its name and type of activity, then when selling such an enterprise, its owner is prepared in advance to incur certain losses associated with the cost of the inscription.

There is also such a criterion for classifying costs as the time intervals during which they occur. The costs that a firm incurs in producing a given volume of output depend not only on the prices of the factors of production used, but also on which production factors are used and in what quantities. Therefore, short- and long-term periods in the company’s activities are distinguished.

2.3.1. Production costs in a market economy.

Production costs – This is the monetary cost of purchasing the factors of production used. Most cost effective method production is considered to be one in which production costs are minimized. Production costs are measured in value terms based on the costs incurred.

Production costs – costs that are directly associated with 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 option for using factors of production and minimizing costs.

Internal (implicit) costs – These are monetary incomes that the company donates, independently using its resources, i.e. These are the income that could be received by the company for independently used resources in the best possible way of using them. Opportunity cost is the amount of money required to divert a particular resource from the production of good B and use it to produce good A.

Thus, the costs in cash that the company incurred in favor of suppliers (labor, services, fuel, raw materials) are called external (explicit) costs.

Dividing costs into explicit and implicit are two approaches to understanding the nature of costs.

1. Accounting approach: Production costs should include all real, actual expenses in cash (salaries, rent, alternative costs, raw materials, fuel, depreciation, social contributions).

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

Short term(SR) is the period of time during which some factors of production are constant and others are variable.

Constant factors are the overall 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 to the industry in the short term is limited. Variables – raw materials, number of workers.

Long term(LR) – the period of time during which all factors of production are variable. Those. During this period, you can change the size of buildings, equipment, and the number of companies. During this period, the company can change all production parameters.

Classification of costs

Fixed costs (F.C.) – 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 products produced.

Example: building rent, equipment maintenance, administration salary.

C is the amount of costs.

Schedule fixed costs is a straight line parallel to the OX axis.

Average fixed costs (A F C) – fixed costs that fall on a unit of output and are determined by the formula: A.F.C. = F.C./ Q

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

The graph of average fixed costs is a curve that has a decreasing character, because As production volume increases, total revenue increases, then average fixed costs represent an increasingly smaller value per unit of product.

Variable costs (V.C.) – costs, the value of which changes depending on the increase or decrease in production volume, i.e. they depend on the volume of products produced.

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

The graph is a curve proportional to the volume of output and increasing in nature. But her character can change. Initial period variable costs grow at a faster rate than manufactured products. As the optimal production size (Q 1) is achieved, relative savings in VC occur.

Average variable costs (AVC) – the volume of variable costs that falls on a 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 increases sharply.

A graph is a curve that does not start at the origin. The general nature of the curve is increasing. The technologically optimal output size is achieved when AVCs become minimal (i.e. Q – 1).

Total costs (TC or C) – the totality of a firm's fixed and variable costs associated with producing products in the short term. They are determined by the formula: TC = FC + VC

Another formula (function of the volume of production output): TC = f (Q).

Depreciation and amortization

Wear- This is the gradual loss of capital resources of their value.

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

A decrease in the value of capital goods may not be associated with their loss of 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 that perform similar functions, but are more advanced.

Obsolescence is a consequence of scientific and technological progress, but for the company this results in increased costs. Obsolescence refers to changes in fixed costs. Physical wear and tear is a variable cost. Capital goods last more than one year. Their cost is transferred to finished products gradually as they wear out - this is called depreciation. Part of the revenue for depreciation is formed in the depreciation fund.

Depreciation deductions:

Reflect an 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 to be worn out during the year. It shows how many years the cost of fixed assets must be reimbursed.

Average Total Cost (ATC) – the sum of the total costs per unit of production output:

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

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

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

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

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

Marginal cost shows how much it would cost the firm to increase output per unit. They decisively influence the firm’s choice of production volume, because This is exactly the indicator that the company can influence.

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

In the short run, the company's costs are 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 increase in equipment utilization.

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

For making a firm's decision, the most important characteristic is the average value; average fixed costs fall as production volume increases.

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

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

TB is the level of physical sales volume over an estimated period of time at which revenue from product sales coincides with production costs.

Point A – TB, at which 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 remain constant.

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

Law: with the growth of someone’s use of a factor of production, with the rest remaining unchanged, sooner or later a point is reached, starting from which additional use variable factors leads to a decrease in production growth.

The operation of this law presupposes the unchanged state of technical and technological production. And therefore, technological progress can change the scope of this law.

The long-run period is characterized by the fact that the firm is able to change all the factors of production used. During this period variable character of all used production factors allows the company to use the most optimal combinations of them. This will affect the magnitude and dynamics of average costs (costs per unit of production). If a company decides to increase production volume, but at the initial stage (ATC) 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 short-term periods, because The long-term period is the sum of the short-term periods.

The long-run cost curve consists of options called stages of growth. In each stage (I – III) the company operates in the short term. The dynamics of the long-run cost curve can be explained using economies of scale. The company changes the parameters of its activities, i.e. the transition from one type of enterprise size to another is called change in scale of production.

I – in this time interval, long-term costs decrease with an increase in the volume of output, i.e. there are 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 to an increase in production volume, i.e. remains unchanged. And the firm will have a constant effect from changes in the scale of production (constant returns to scale).

III – long-term ATC increases with an increase in output and there is damage from an increase in the scale of production or diseconomies of scale(from Q 2 to Q 3).

3. IN general view 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 received by a 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 product sold.

Average revenue is equal to the market price:

AR = TR/ Q = PQ/ Q = P

M.R.(marginal revenue) is the increase in revenue that arises from the sale of the next unit of production. In condition perfect competition it is equal to the market price:

M.R. = ∆ 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) are determined by the amount of expenses of the enterprise to pay for purchased factors of production from outside.

Implicit costs (internal) determined by the cost of resources owned by a given 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 internal costs are subtracted from accounting profit, we get economic profit.

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

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

Economic profit(clean) – its presence means that resources are used more efficiently at a given enterprise.

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

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

The company's goals are to maximize profit, which is the difference between total revenue and total costs. Since both costs and income are a function of production volume, the main problem for the company becomes determining the optimal (best) production volume. A 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 term); if the losses are greater than its fixed costs, then the firm should stop production.

Send your good work in the knowledge base is simple. Use the form below

Students, graduate students, young scientists who use the knowledge base in their studies and work will be very grateful to you.

Posted on http://www.allbest.ru/

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 purposes of this course work is the study of production costs, their essence and the impact of costs on profit. Production costs are now quite serious and actual 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. The rationality of the behavior of 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 economic activity Firms often face the problem of choosing between two or more options. 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. By choosing one of the possible options, the firm will not only bear the costs associated with that option, but will also lose (give up, lose) something by giving up the alternative option. 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 the literal meaning of such terms as “lost profit”, from the point of view 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 include overhead costs, rental payments, wages for the entrepreneur, insurance contributions, etc.

Implicit costs. The production process involves not only raw materials and labor, but also capital resources - machines, equipment, buildings of workshops and factories, as well as the entrepreneur’s funds. 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 is 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 an 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 in a manufacturing enterprise are the costs of purchasing 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 sales commissions.

Proportional variable costs mean variable costs that 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 reduction are expressed by the general concept of “proper marginal costs” (SPRIZ).

The actual marginal cost is understood as a change in the value of gross costs that occurred 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 costs are understood as the average value of the costs of increase or reduction costs per unit of production that arose as a result of a change 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 usually include resources such as industrial buildings, machines, and 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 deductions, insurance premiums, rent, management salaries. 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 experiencing rapid development and the technology in it is changing rapidly, fixed capital becomes obsolete and requires renewal much earlier than 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). At the initial 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 lies in the fact that at the 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 costs of lost opportunities associated with entrepreneurial risk appear: 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 magnitude of 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 their 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, many people remained behind the scenes due to the limitations of the topic. specific situations, in which the interaction and structure of supply and demand naturally have their own characteristics. 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 is the availability of resources in the country for additional use.

Since the purpose of this work was general description economic content of demand, supply and their interaction, then 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. Federal laws dated 02/20/1996 N 18-ФЗ, dated 08/12/1996 N 111-ФЗ, dated 07/08/1999 N 138-ФЗ, dated 04/16/2001 N 45-ФЗ, dated 05/15/2001 N 54-ФЗ).

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: Trans. 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: Textbook. 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: Tutorial. 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

Posted on Allbest.ru

Similar documents

The essence of production costs. Ways to minimize firm costs in the light of microeconomic theory. Fixed, variable and total costs, their characteristics. Curves of average costs of a company in the short and long term, their features.

abstract, added 10/07/2013


Production costs, their types. Marginal costs. Law of diminishing marginal returns. Equilibrium of the company in the short and long run. Study of costs in the production process. Profit. Profit maximization. Break even.

course work, added 11/05/2008


Characteristics of the main types of costs as a monetary expression of the costs of production factors; their types: explicit, implicit, constant, variable, limiting. Contents of the law of diminishing returns. Economies of production scale. Cost reduction program.

course work, added 11/08/2013


Economic nature of costs. Production costs and distribution costs. Opportunity "explicit" and "implicit" costs. Economic and accounting costs. Fixed, variable and total costs. Costs associated with the process of selling goods.

presentation, added 02/02/2016


Opportunity, explicit and implicit costs. Estimation of resource costs. Production costs in the short and long term. Determination of the average cost of increase or cost of reduction per unit of production. Price elasticity of demand.

abstract, added 03/24/2015


Study of the concept and composition of a company's production costs. Analysis of the relationship between economic and accounting costs and profits. Production costs in the short and long term. Classification of production costs in new economic conditions.

course work, added 06/22/2015


Cost and costs of a company in the energy sector: classification and types of costs in production in the short and long term. Marginal revenue, normal profit, excess profit and loss. Equilibrium of a competitive firm in the long run.

presentation, added 11/10/2015


Opportunity costs. External and internal costs. Production costs in the short run. Fixed, variable and total costs. Average costs. Marginal costs. Private and public costs.

test, added 11/01/2006


Factors of production. Modern system of production costs in economic theory. Explicit and implicit, economic and accounting costs. Alternative and non-alternative costs. Transaction costs. Profit and its forms. Distribution costs.

course work, added 11/13/2008


Concept, classification, structure of accounting and economic production costs. Net business profit; production costs in the short and long term. Positive effect of increasing production scale, counteracting factors.

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 ensure efficient operation of the enterprise at the lowest possible cost.

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 large projects may end and others 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 most 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 rent payments for land, interest on capital invested in securities, etc. 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.

Firm. Production costs and their types.

Firm(enterprise) is an economic unit that realizes its own interests through the production and sale of goods and services through the systematic combination of factors of production.

All firms can be classified according to two main criteria: the form of ownership of capital and the degree of concentration of capital. In other words: who owns the company and what is its size. Based on these two criteria, various organizational and economic forms of entrepreneurial activity are distinguished. This includes public and private (sole proprietorships, partnerships, joint stock) enterprises. According to the degree of concentration of production, small (up to 100 people), medium (up to 500 people) and large (more than 500 people) enterprises are distinguished.

Determining the size and structure of the costs of an enterprise (firm) for the production of products that would ensure the enterprise a stable (equilibrium) position and prosperity in the market is the most important task of economic activity at the micro level.

Production costs - These are expenses, monetary expenditures that are extremely important to carry out to create a product. For an enterprise (firm), they act as payment for acquired factors of production.

The majority of production costs comes from the use of production resources. If the latter are used in one place, they cannot be used in another, since they have such properties as rarity and limitation. For example, the money spent on buying a blast furnace for the production of pig iron cannot simultaneously be spent on the production of ice cream. As a result, by using a resource in a certain way, we lose the opportunity to use this resource in some other way.

Due to this circumstance, any decision to produce something makes it extremely important to refuse to use the same resources for the production of some other types of products. Thus, costs are opportunity costs.

Opportunity Cost- these are the costs of producing a product, assessed in terms of the lost opportunity to use the same resources for other purposes.

From an economic point of view, opportunity costs can be divided into two groups: “explicit” and “implicit”.

Explicit costs- These are opportunity costs that take the form of cash payments to suppliers of factors of production and intermediate goods.

Explicit costs include: workers' wages (cash payments to workers as suppliers of the production factor - labor); cash costs for the purchase or payment for the rental of machines, machinery, equipment, buildings, structures (cash payments to capital suppliers); payment of transportation costs; utility bills (electricity, gas, water); payment for services of banks and insurance companies; payment to suppliers material resources(raw materials, semi-finished products, components).

Implicit costs - this is the opportunity cost of using resources owned by the firm itself, ᴛ.ᴇ. unpaid expenses.

Implicit costs are presented as:

1. Cash payments that a company could receive if it used its resources more profitably. This can also include lost profits ("costs of lost opportunities"); the wages that an entrepreneur could earn by working somewhere else; interest on capital invested in securities; rent payments for land.

2. Normal profit as the minimum remuneration to an entrepreneur that keeps him in the chosen industry.

For example, an entrepreneur engaged in the production of fountain pens considers it sufficient for himself to receive a normal profit of 15% of the invested capital. And if the production of fountain pens gives the entrepreneur less than normal profit, then he will move his capital to industries that give at least normal profit.

3. It is important to note that for the owner of capital, implicit costs are the profit that he could have received by investing his capital not in this, but in some other business (enterprise). For a peasant who owns land, such implicit costs will be the rent that he could receive by renting out his land. For an entrepreneur (including a person engaged in ordinary labor activity) the implicit costs will be the salary that he could have received for the same time, working for hire at any company or enterprise.

However, Western economic theory includes the income of the entrepreneur in production costs. Moreover, such income is perceived as a payment for risk, which rewards the entrepreneur and encourages him to keep his financial assets within the boundaries of this enterprise and not divert them for other purposes.

Production costs, including normal or average profit, are economic costs.

Economic or opportunity costs in modern theory are considered to be the costs of a company incurred in the conditions of making the best economic decision on the use of resources. This is the ideal to which a company should strive. Of course, the real picture of the formation of total (gross) costs is somewhat different, since any ideal is difficult to achieve.

It must be said that economic costs are not equivalent to those with which accounting operates. IN accounting costs The entrepreneur's profit is not included at all.

Production costs, which are used by economic theory, are distinguished from accounting by the assessment of internal costs. The latter are associated with costs that are incurred through the use of own products in the production process. For example, part of the harvested crop is used to sow the company's land. The company uses such grain for internal needs and does not pay for it.

In accounting, internal costs are accounted for at cost. But from the standpoint of setting the price of a released product, costs of this kind should be assessed at the market price of that resource.

Internal costs - These are associated with the use of the company’s own products, which turn into a resource for the company’s further production.

External costs - This is the cost of money that is used to acquire resources that are the property of those who are not the owners of the company.

Production costs, which are realized in the production of a product, can be classified not only depending on what resources are used, be it the resources of the company or the resources that had to be paid for. Another classification of costs is possible.

Fixed, variable and total costs

The costs that a firm incurs in producing a given volume of output depend on the possibility of changing the amount of all employed resources.

Fixed costs(FC, fixed costs)- these are costs that do not depend in the short term on how much the company produces. Οʜᴎ represent the costs of its constant factors of production.

Fixed costs are associated with the very existence of the firm's production equipment and must be paid for this, even if the firm does not produce anything. A firm can avoid the costs associated with its fixed factors of production only by completely ceasing its activities.

Variable costs(US, variable costs)- These are costs that depend on the volume of production of the company. Οʜᴎ represent the costs of the firm's variable factors of production.

These include costs of raw materials, fuel, energy, transportation services, etc. The majority of variable costs typically come from labor and materials. Since the costs of variable factors increase as output increases, variable costs also increase with output.

General (gross) costs for the quantity of goods produced - these are all the costs at a given point in time necessary for the production of a particular product.

In order to more clearly determine the possible production volumes at which the company guarantees itself against excessive growth of production costs, the dynamics of average costs is examined.

There are average constants (AFC). average variables (AVC) PI average general (PBX) costs.

Average fixed costs (AFS) represent the fixed cost ratio (FC) to production volume:

AFC = FC/Q.

Average variable costs (AVQ represent the ratio of variable costs (VC) to production volume:

AVC=VC/Q.

Average total costs (PBX) represent the total cost ratio (TS)

to production volume:

ATS= TC/Q =AVC + AFC,

because TS= VC + FC.

Average costs are used when deciding whether to produce a given product at all. In particular, if the price, which represents the average income per unit of output, is less than AVC, then the firm will reduce its losses by suspending its activities in the short term. If the price is lower ATS, then the firm receives negative economics; profits and should consider permanent closure. Graphically this situation should be depicted as follows.

If average costs are lower than the market price, then the company can operate profitably.

To understand whether producing an additional unit of output is profitable, it is critical to compare the resulting change in income with the marginal cost of production.

Marginal cost(MS, marginal costs) - These are the costs associated with producing an additional unit of output.

In other words, marginal cost is an increase TS, the firm must go to ĸᴏᴛᴏᴩᴏᴇ in order to produce another unit of output:

MS= Changes in TS/ Changes in Q (MC = TC/Q).

The concept of marginal cost is of strategic importance because it identifies costs that a firm can directly control.

The equilibrium point of the firm and maximum profit is reached when marginal revenue and marginal cost are equal.

When a firm has reached this ratio, it will no longer increase production, output will become stable, hence the name - equilibrium of the firm.

Firm. Production costs and their types. - concept and types. Classification and features of the category "Company. Production costs and their types." 2017, 2018.