The concept of marginal cost occupies an important place in economic theory. In order to begin our discussion of economics, we first need to understand 1 the. To an accountant or any other individual ot her than an ec onomist, cost refers to the monetary expenses incurred by a firm in the course of producing a commodity. Cost and costing techniques in managerial economics informatics. Principles of production economics and cost concepts objectives to explain the production function, the law of diminishing returns and marginalism in simple language. It is all about the financial aspects of production. High school economicsopens with an exploration of the fundamental trilogy of economics scarcity, choice, and cost. In other words, marginal cost is the addition to the total cost of producing n units instead of n 1 unit i. Class xi economics english full study material concepts. Here, costs include imputed value of the entrepreneurs own resources and services, as well as the salary of the ownermanager. When a firm starts producing goods, it has to pay the price for the factors employed for the production.
Objectives chapter 2 2 1 describe some of the basic cost concepts. Let us discuss here some important concepts of the two categories. Our society thrives on the five basic economic principles, whether its the marginal principle of economics or opportunity cost. Media economics combines the study of economics with the study of media. Explain the concept of opportunity cost and explain why accounting profits and economic profits are not the same. In this unit, we will learn about the different types of costs and product costing systems. Cost concepts and design economics free download as powerpoint presentation. Because something is limited, we need to make decisions regarding how we use and allocate our resources. Cost curves or cost concepts in economics authorstream presentation. Opportunity cost refers to the loss of earnings due to opportunities foregone due to scarcity of resources.
Besides money cost there are other costs that are equally important to take decisions on various matters. The concepts should be clear which will help in faster learning. For this to be the case, the shadow price of a commodity must be defined. For example the monetary expenditure on purchase of raw material, payment of wages and salaries, payment of rent and other charges of business etc can be termed as money cost. In this way, managerial economics is considered as economics applied to problems of choice or alternatives and allocation of scarce resources by the firms. Economics discusses the economic problems and economic activities and indicates proper solution to these problems. In particular we show how and when shadow prices can be used to construct cost benefit tests which evaluate projects in terms of their net effect on social welfare.
These lecture notes were prepared by xingze wang, yinghsuan lin, and frederick jao specifically for mit opencourseware. Chapter 3 basic economic concepts mit opencourseware. We study some important concepts of costs, and traditional and modern theories of cost. Download as pptx, pdf, txt or read online from scribd. This field of knowledge is known as production economics and cost principles, and includes aspects such as the production function, the law of diminishing returns, marginalism and cost concepts and relations. Lecture notes principles of microeconomics economics. Since we are unable to have everything we desire, we must make choices on how we will use our resources.
Download class xi economics english full study material, economics chapter notes, class xi economics english full study material. Production economics, thus provides a framework for decision making at the level of a firm for increasing efficiency and profits. Production and costs important questions for class 12 economics concept of cost function. Theory of production, in economics, an effort to explain the principles by which a business firm decides how much of each commodity that it sells its outputs or products it will produce, and how much of each kind of labour, raw material, fixed capital good, etc.
Cost of producing a good, in economics is the sum total of all the, a. Learning the important concepts is very important for every student to get better marks in examinations. Cost concepts are vital in many areas of planning, control, and decisionmaking. Cost concepts analytical costs accounting costs youtube. The production possibilities frontier illustrates concepts of a. The better you understand these concepts, the better you can make the wisest choices when it. Total fixed costs tfc average fixed costs afc total variable costs tvc average variable cost avc total cost tc average total cost atc marginal cost mc 4. Pdf chapter 2 cost concepts and design economic khalil. Cost accounting helps the business to ascertain the cost of productionservices offered by the organization and also provides valuable information for taking various decisions and also for cost control and cost reduction.
It should be remembered that every producer is interested in money costs. Cost it refers to the expenditure incurred by a producer on the factor as well as nonfactor inputs for a given amount of output of a commodity 2. Oil price concepts are often expressed in ways which do not immediately reveal their real economic meaning. Students then examine the broad social goals of an economy in prepara. Scarcity is the condition in which our wants are greater than our limited resources. A managerial economists concept of cost does not necessarily coincide with that of accountant. High school economics troup county school district. It refers to the monetary expenditure which a firm has to incur in order to purchase or hire the factors of production. It is concerned with the changing economic forces that direct and constrain the choices of managers, practitioners and other decisionmakers across the media. Cost cbse notes for class 12 micro economics learn cbse. Ordinarily, costs refer to the money expenses incurred by a firm in the production process. Money costs therefore relate to money outlays by a firm or factors of a production which enable the firm to produce and sell a product.
It is the expense of purchasing or hiring factor services for production and other business activities. If so, the opportunity cost of studying economics is enormous. Chapter 2 cost concepts and design economics free download as powerpoint presentation. Free markets may not be perfect but they are probably the best way to organize an economy sarwat jahan and ahmed saber mahmud 4 what is keynesian economics.
Sometimes, basic concepts of economics are referred to as basic elements of economics. Management accounting helps the management to conduct the business in a more ef. When commodities and services are produced, various expenses have to be incurred, e. Want may be defined as an insatiable desire or need by human beings to own goods or services that give satisfaction. Cost cbse notes for class 12 micro economics cbse notescbse notes micro economicsncert solutions micro economics introduction this chapter gives a detailed version of cost and its types, related numericals and the relationship between them. Opportunity cost to gain more of a good, something else must be given up.
Different cost concepts an overview economics discussion. This section provides lecture notes from the course. The term cost is most widely used as the money cost of production which relates to the money expenditure of a firm on. Economics also discuses about the value judgment of human actions and behavior. Concepts and tools is intended as a textbook for managerial economics courses in business and management postgraduate progammes. It is used for analyzing the cost of a project in short and long run. Money cost thus includes all the business expenses which involve outlay of money to support business operations. A list and definition of different types of economic costs fixed, variable, total, marginal, sunk, accounting, opportunity cost. For example, we shall find that some price concepts are in fact fiscal concepts, and that some cost concepts tell us more about prices than certain prices taken at face value. On oil price concepts oxford institute for energy studies. The economic concepts and issues introduced in the course of this book provide a basis for developing your. Based on the theory of firm, these principles explain various cost concepts, output response to inputs and the use of inputsresources to maximize profits and or minimize costs.
Important questions for class 12 economics concept of cost. Knowledge of and insight into these economic principles are important since. Choice choices in the production of different goods need to be made. A read is counted each time someone views a publication summary such as the title, abstract, and list of authors, clicks on a figure, or views or downloads the fulltext. Money cost of production is the actual monetary expenditure made by company in the production process. Cost refers the monetary measure of the amount of resources given up or used for some specific purpose. Cost function a cost function shows the functional relationship between output and cost of production. Economic concepts explained v foreword maurice obstfeld i. Increases in revenue are therefore likely to be increases in profit or reductions in deficits. Managerial economics is a discipline that combines economic theory with managerial practice. Analytical cost concepts used in economic analysis of business. The subtopics for each lecture are related to the chapters in the textbook. Cost curves or cost concepts in economics authorstream. The lecture notes are from one of the discussion sections for the course.
Marginal cost is addition to the total cost caused by producing one more unit of output. The attached concepts made as per ncert and cbse pattern will help the. Cost analysis is all about the study of the behavior of cost with respect to various production criteria like the scale of operations, prices of the factors of production, size of output, etc. Besides, how economic development of the country is achieved through the means of economic planning is also included in the subject matter of economics. Economics is the study of scarcity and choice scarcity means that there is a finite amount of a good or service basically they are limited.
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