Cost Concept In Economics Presentation
| Introduction to Cost Concept | ||
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| • Cost concept is a fundamental concept in economics. | ||
| • It refers to the monetary value of resources used in the production of goods and services. | ||
| • Costs can be classified into various categories based on their nature and relevance. | ||
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| Types of Costs | ||
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| • Fixed Costs: Costs that remain constant regardless of the level of production. | ||
| • Variable Costs: Costs that change in direct proportion to the level of production. | ||
| • Total Costs: The sum of fixed and variable costs. | ||
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| 2 | ||
| Cost Curves | ||
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| • Average Fixed Cost (AFC): The fixed cost per unit of output. | ||
| • Average Variable Cost (AVC): The variable cost per unit of output. | ||
| • Average Total Cost (ATC): The total cost per unit of output. | ||
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| 3 | ||
| Cost Curves (contd.) | ||
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| • Marginal Cost (MC): The additional cost incurred by producing one more unit of output. | ||
| • MC curve intersects the AVC and ATC curves at their minimum points. | ||
| • MC curve represents the rate of change in total costs as output changes. | ||
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| 4 | ||
| Economies of Scale | ||
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| • Economies of Scale: The cost advantages gained by increasing the scale of production. | ||
| • As production increases, fixed costs are spread over a larger output, reducing the average fixed cost. | ||
| • Economies of scale lead to a downward-sloping ATC curve. | ||
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| 5 | ||
| Diseconomies of Scale | ||
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| • Diseconomies of Scale: The cost disadvantages experienced when production exceeds a certain level. | ||
| • As production increases beyond a certain point, coordination and communication issues may arise, leading to higher costs. | ||
| • Diseconomies of scale result in an upward-sloping ATC curve. | ||
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| 6 | ||
| Cost-Volume-Profit Analysis | ||
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| • Cost-Volume-Profit (CVP) analysis examines the relationship between costs, volume of production, and profits. | ||
| • It helps businesses determine the breakeven point and assess the impact of changes in volume on profitability. | ||
| • CVP analysis considers fixed costs, variable costs, selling price, and sales volume. | ||
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| Conclusion | ||
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| • Understanding the cost concept is crucial for businesses to make informed decisions. | ||
| • By analyzing cost curves and conducting CVP analysis, businesses can optimize their production and pricing strategies. | ||
| • Cost concept plays a vital role in determining the profitability and sustainability of businesses. | ||
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