BUSINESS ECONOMICS

1. BUSINESS ECONOMICS A Presentation on “COST CONCEPTS” By Sri. G.A. Narasimham M.Com,M.Phil,MBA Lecturer in Commerce Government College(A) Rajamahendravarm

2. BUSINESS ECONOMICS Cost Concepts Cost Function Outlay and Opportunity Costs Explicit and Implicit Costs Fixed and Variable Costs

3. BUSINESS ECONOMICS Cost Concepts OTHER COSTS Marginal Costs Historical and Replacement Costs Incremental and Sunk Costs Controllable & Uncontrollable Short-run & Long-run Costs

4. BUSINESS ECONOMICS Cost Analysis Cost analysis has a key role to play in business economics. Cost analysis helps in comparison between costs and revenues for business decisions.

5. BUSINESS ECONOMICS Cost Function Cost functions tells us about the determinants of cost. Cost is a function of prices of input, the rate of output, the size of the plant and the state of technology and is denoted by: C= f( F, O,P,T)

6. BUSINESS ECONOMICS Cost Concepts – Classification Outlay & Opportunity Costs Outlay Costs are the actual financial expenditure of the firm which is made as one time investment

7. BUSINESS ECONOMICS Cost Concepts – Classification Opportunity Costs are defined as sacrificed alternatives where profits derived from the next best alternative investment that are foregone by the firm by using the available resources for a particular business

8. BUSINESS ECONOMICS Cost Concepts – Classification Explicit or Out of Pocket Costs refers to the actual money outlay of the firm to buy or hire the productive resources it needs for the process of production

9. BUSINESS ECONOMICS Cost Concepts – Classification Implicit or Book Costs refers to the opportunity costs of the use of factors which a firm does not buy or hire but already owns them which do not require current expenditure like out of pocket costs.

10. BUSINESS ECONOMICS Cost Concepts – Classification Fixed and Variable Costs

11. BUSINESS ECONOMICS Cost Concepts – Classification Fixed Costs are the costs spent by a firm as a result of the use of fixed inputs and remain constant irrespective of the level of output.

12. BUSINESS ECONOMICS Cost Concepts – Classification Variable Costs are those costs that are incurred by the firm as a result of the use of variable factor inputs. These costs vary directly with the level of output.

13. BUSINESS ECONOMICS Cost Concepts- Classification OTHER COSTS Marginal Costs Historical and Replacement Costs Incremental and Sunk Costs Controllable & Uncontrollable Short-run & Long-run Costs

14. BUSINESS ECONOMICS Cost Concepts – Classification Marginal Costs Marginal costs are incurred if there is a unitary change in output. It refers to the additional cost incurred for producing one more unit of output.

15. BUSINESS ECONOMICS Cost Concepts – Classification Historical and Replacement Costs Historical cost refers to the original cost paid by the firm for the purchase of plant and machinery. Replacement cost refers to the price that would be paid for the existing machinery that is currently prevailing in the market.

16. BUSINESS ECONOMICS Cost Concepts – Classification Incremental and Sunk Costs Incremental cost is the cost incurred by a firm which is caused by a change in the level of activity. Sunk costs are those costs which once incurred and will not be altered due to the change in the level of business activity.

17. BUSINESS ECONOMICS Cost Concepts – Classification Controllable and Uncontrollable Costs Costs which are identifiable and subject to regulation by the business executive are called controllable costs. Costs which are identifiable and are out of regulation by the business executive are called uncontrollable costs.

18. BUSINESS ECONOMICS Cost Concepts – Classification Short-run and Long-run Costs Short-run Costs are the costs associated with the change in output of the firm. These costs vary in relation to the variation in input components only.

19. BUSINESS ECONOMICS Cost Concepts – Classification Long-run Costs Long-run Costs are the operating costs that are associated with the changing scale of production or alteration in the size of the plant In the long-run production function the entire factor input is variable