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8/14/2019 Neha Cost Revenue Ppt Friday
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BY:-
NEHA SHARMA
CENTRAL UNIVERSITY OF RAJASTHAN
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Expenditure incurred by a producer on fixed andvariable inputs may be termed as cost of
production. The expense that must be incurred in order toproduce goods for sale.
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1)Short Run Cost
2)Long Run Cost
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In the long run all the factors are variable.
Long run costs:- In the long run there are no
fixed costs since all the costs are variable.
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TOTAL FIXED COST:- fixed costs are
those which are independent ofoutput and that are spent and can notbe changed in the period of time.
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0
2 0
4 0
6 0
8 0
1 0 0
0 1 2 3 4 5 6 7 8
TFC
Output
(Q)
0
1
2
3
4
5
67
TFC
()
12
12
12
12
12
12
1212
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Short Run CostsTOTAL VARIABLE COSTS:-Total variable cost is
the sum of amounts spent for each of thevariable inputs used.
Total variable cost change with changes inoutput in short run. they increase or decreasewhen the output rises or falls.
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0
20
40
60
80
1 0 0
0 1 2 3 4 5 6 7 8
TVC
Output
(Q)
0
12
3
4
5
67
TFC
()
12
1212
12
12
12
1212
TVC
()
0
1016
21
28
40
6091
TFC
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Total CostsThe Sum of the variable and fixed costs are
total costs.
TC=TFC+TVC
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fig
0
2 0
4 0
6 0
8 0
1 0 0
0 1 2 3 4 5 6 7 8
TC
Output
(Q)
0
12
3
4
5
67
TFC
()
12
1212
12
12
12
1212
TVC
()
0
1016
21
28
40
6091
TC
()
12
2228
33
40
52
72103
TVC
TFC
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Average CostAverage cost is equals to total cost divided by
output.
AC=TC/Q AC=AFC+AVC
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Average CostAVERAGE FIXED COSTS:-Average fixed cost is
equals to total fixed cost divided by quantityproduced .
AFC=TFC/Q
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Average CostAVERAGE VARIABLE COSTS:-Average variable
cost is equals to total variable cost divided byquantity produced .
AVC=TVC/Q
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Marginal CostChange in total cost due to one unit change in
output.
MC=TCn-TCn-1
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fig Output (Q)
Costs(
)
MC
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fig Output (Q)
Costs(
)
AFC
AVC
MC
x
AC
z
y
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Relationship B/W Average and
marginal costsIf MCAC then AC is rising.
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Long run total cost
Long run average cost
Long run marginal cost
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Long Run Total CostsThe long run total cost is the minimum
Cost at which each level of output can beproduced.
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Long Run Average
Costs[ENVELOPE CURVE]The long run average cost is that which shows the
minimum cost per unit of producing each output level,
corresponding to different scales of productivity.
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Why LAC is U Shaped1) Economies of scalesa) internal economies
b) external economies
2) Diseconomies of scales
a) internal diseconomies
b) external diseconomies
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SYNTHESISAccording to the modern economists LAC is L
shaped.
Theoretically LAC is U shaped but practically itis L shaped.
Like in the multinational corporations LAC is Lshaped.
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Marginal Cost CurveIn the long run ,change in total cost due to
one unit change in output is known as longrun marginal cost.
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fig
OutputO
Costs
LRMC
LRAC
Initial economies of scale,
then diseconomies of scale
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Long run average and
marginal costsWhen LRMCLRAC then Ac is rising.
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The money that comes into the firm from the
scale of their goods.
a)Total revenueb) Average revenue
c) Marginal revenue
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RevenueTotal revenue:-Total revenue of a firm is the
total money receipts with the scale of its
product.The product of price and the number of units
sold will give us the firms total revenue.
TR=P*Q where p=price/unit
Q=quantity of goods sold
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RevenueAverage revenue:-Average revenue is the
per unit revenue received from the sale of
one unit of a commodity.AR=TR/Q
AR=(P*Q)/Q
AR=P
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RevenueMarginal revenue:-change in total revenue
due to one unit change in output .
MR= TRn-TRn-1
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fig
O O
Price(
)
AR,MR()
Pe
S
D
P = AR
= MR
Q (millions) Q (hundreds)
(a) The market (b) The firm
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fig
-4
-2
0
2
4
6
8
1 2 3 4 5 6 7
Q
(units)
1
23
4
5
6
7
P
=AR
()8
76
5
4
3
2
TR
()
8
1418
20
20
18
14
MR
()
6
4
2
0
-2
-4
MR
AR,M
R()
Quantity
AR
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THANKSQUESTION & ANSWER SESSION