1. COST AND PRODUCTION

2. EARTH PROVIDES ENOUGH
TO SATISFY
EVERY MAN’S NEED
BUT NOT
EVERY MAN’S GREED

3. LIMITED/SCARCE RESOURCES
UNLIMITED WANTS
LIMITED/SCARCE RESOURCES
MULTIPLE / ALTERNATIVE USES OF RESOURCES

4. INPUTS / FACTORS OF PRODUCTION
LAND
BUILDING
MACHINERY
LABOUR
RAW MATERIAL
TECHNOLOGY

5. COST IS A FUNCTION OF PRODUCTION
PROFIT IS EXCESS OF REVENUE OVER COST

6. COST FUNCTION A COMBINATION OF MORE THAN ONE
INPUTS TO PRODUCE A DESIRED LEVEL
OF OUTPUT WHICH IS LEAST EXPENSIVE

7. TYPES OF COST TOTAL FIXED COST (TFC) –
TOTAL COST TO EMPLOY FIXED INPUTS. FIXED COSTS DO NOT CHANGE AS OUTPUT LEVELS CHANGE.
TOTAL VARIABLE COST (TVC) –
TOTAL COST TO EMPLOY VARIABLE INPUTS TO
PRODUCE A GIVEN LEVEL OF OUTPUT.
VARIABLE COSTS CHANGE AS OUTPUT LEVELS CHANGE.

8. TYPES OF COST TC = TFC +TVC TOTAL COST (TC) –
TOTAL COST OF PRODUCING A GIVEN LEVEL OF OUTPUT INCLUDING BOTH VARIABLE AND FIXED COSTS.
TC IS CALCULATED AS-
TC = TFC +TVC

10. TOTAL COST / OUTPUT = TC / Y = AVC + AFC
TOTAL AVERAGE COST
AVERAGE TOTAL COST (ATC) –
TOTAL COSTS PER UNIT OF OUTPUT WHEN PRODUCING A CERTAIN AMOUNT OF OUTPUT.
ATC IS CALCULATED AS-
TOTAL COST / OUTPUT = TC / Y = AVC + AFC

11. MARGINAL COST MARGINAL COST (MC) –
CHANGE IN THE COST TO PRODUCE AN ADDITIONAL UNIT OF OUTPUT.
MC IS CALCULATED AS-
CHANGE IN TC   OR
        CHANGE IN TVC

12. RELATION BETWEEN COSTS
THE RELATIONSHIP BETWEEN ATC, AVC, AND MC IS SHOWN ON THE GRAPH BELOW (NOTE THAT OUTPUT IS NOW ON THE HORIZONTAL AXIS)
NOTE THE GENERAL RELATIONSHIPS BETWEEN THE COST CURVES

13. SUMMARY The average-total-cost curve is U-shaped.
The marginal-cost curve always crosses the average-total-cost curve at the minimum of ATC.
A firm’s costs often depend on the time horizon being considered.

14. THANK YOU