Economics Lecture 2 Khasan Redjaboev Economics for WIUT L.

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Presentation transcript:

Economics Lecture 2 Khasan Redjaboev Economics for WIUT L

Content Costs Fixed and variable Opportunity costs Firm specific relations

Costs The amount of money we spend to produce a certain type or product or deliver a particular service is called costs

Costs To produce the optimal amount of output we should optimally use our inputs.

Fixed factor An input that cannot be increased in supply within a given time period

Short-run The period of time over which at least one factor is fixed

Variable factor An input that can be increased in supply within a given time period

Long-run The period of time long enough for all factors to be varied

SALES DISCOUNTS FLOWER SHOP

The Law of Diminishing Returns With one or more factors fixed, there will be a point at which each additional variable factor will bring less additional output. That is you get less than you spend

PAPER WRAP PRODUCTION

POWER POINT SPACE USAGE

Opportunity Cost Cost measured in terms of the best alternative forgone. In other words it is the opportunity lost.

Opportunity Cost You are offered a job. Can work in UZ BAT for 400,000 UZS per month and enroll into Manager Program ® ™ and go to Georgia and Russia in two years. Or you can work in a private firm LABEL EX and earn 800,000 UZS per month immediately.

Historic Costs Costs that are gone and now cannot be replaced by utilizing it in other way than specified. Also called sunk cost.

Fixed costs Total costs that do not vary with the amount of output produced

Variable Costs Total costs that vary with the amount of output produced

Total Costs The sum of total fixed costs and total variable costs TC = TFC + TVC

Average Costs Total cost per unit of production AC = TC/Q

References John Sloman, Essentials of Economics, 4 th edn, 2007, chapter 3, pages 82-90