Top Banner
The Nature of Costs Explicit Costs Accounting Costs Economic Costs Implicit Costs Alternative or Opportunity Costs Relevant Costs Incremental Costs Sunk Costs are Irrelevant
16

The Nature of Costs Explicit Costs Accounting Costs Economic Costs Implicit Costs Alternative or Opportunity Costs Relevant Costs Incremental Costs Sunk.

Dec 28, 2015

Download

Documents

Ashlie Palmer

cost functionstotal

pqtotal cost

cost curveslong

cost curvesrelationship

tfcqaverage variable

tfctotal variable cost

fqtotal fixed cost

tcqaverage fixed cost

Welcome message from author
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Page 1: The Nature of Costs Explicit Costs Accounting Costs Economic Costs Implicit Costs Alternative or Opportunity Costs Relevant Costs Incremental Costs Sunk.

The Nature of CostsExplicit Costs

Accounting CostsEconomic Costs

Implicit CostsAlternative or Opportunity Costs

Relevant CostsIncremental CostsSunk Costs are Irrelevant

Page 2: The Nature of Costs Explicit Costs Accounting Costs Economic Costs Implicit Costs Alternative or Opportunity Costs Relevant Costs Incremental Costs Sunk.

Short-Run Cost FunctionsTotal Cost = TC = f(Q)

Total Fixed Cost = TFC

Total Variable Cost = TVC

TC = TFC + TVC

Page 3: The Nature of Costs Explicit Costs Accounting Costs Economic Costs Implicit Costs Alternative or Opportunity Costs Relevant Costs Incremental Costs Sunk.

Short-Run Cost FunctionsAverage Total Cost = ATC = TC/Q

Average Fixed Cost = AFC = TFC/Q

Average Variable Cost = AVC = TVC/Q

ATC = AFC + AVC

Marginal Cost = TC/Q = TVC/Q

Page 4: The Nature of Costs Explicit Costs Accounting Costs Economic Costs Implicit Costs Alternative or Opportunity Costs Relevant Costs Incremental Costs Sunk.

Short-Run Cost Functions

Q TFC TVC TC AFC AVC ATC MC0 $60 $0 $60 - - - -1 60 20 80 $60 $20 $80 $202 60 30 90 30 15 45 103 60 45 105 20 15 35 154 60 80 140 15 20 35 355 60 135 195 12 27 39 55

Page 5: The Nature of Costs Explicit Costs Accounting Costs Economic Costs Implicit Costs Alternative or Opportunity Costs Relevant Costs Incremental Costs Sunk.
Page 6: The Nature of Costs Explicit Costs Accounting Costs Economic Costs Implicit Costs Alternative or Opportunity Costs Relevant Costs Incremental Costs Sunk.

Short-Run Cost FunctionsAverage Variable Cost

AVC = TVC/Q = w/APL

Marginal Cost

TC/Q = TVC/Q = w/MPL

Page 7: The Nature of Costs Explicit Costs Accounting Costs Economic Costs Implicit Costs Alternative or Opportunity Costs Relevant Costs Incremental Costs Sunk.

Long-Run Cost CurvesLong-Run Total Cost = LTC = f(Q)

Long-Run Average Cost = LAC = LTC/Q

Long-Run Marginal Cost = LMC = LTC/Q

Page 8: The Nature of Costs Explicit Costs Accounting Costs Economic Costs Implicit Costs Alternative or Opportunity Costs Relevant Costs Incremental Costs Sunk.

Derivation of Long-Run Cost Curves

Page 9: The Nature of Costs Explicit Costs Accounting Costs Economic Costs Implicit Costs Alternative or Opportunity Costs Relevant Costs Incremental Costs Sunk.

Relationship Between Long-Run and Short-Run Average Cost Curves

Page 10: The Nature of Costs Explicit Costs Accounting Costs Economic Costs Implicit Costs Alternative or Opportunity Costs Relevant Costs Incremental Costs Sunk.

Possible Shapes ofthe LAC Curve

Page 11: The Nature of Costs Explicit Costs Accounting Costs Economic Costs Implicit Costs Alternative or Opportunity Costs Relevant Costs Incremental Costs Sunk.

Learning CurvesAverage Cost of Unit Q = C = aQb

Estimation Form: log C = log a + b Log Q

Page 12: The Nature of Costs Explicit Costs Accounting Costs Economic Costs Implicit Costs Alternative or Opportunity Costs Relevant Costs Incremental Costs Sunk.

Minimizing Costs InternationallyForeign Sourcing of InputsNew International Economies of ScaleImmigration of Skilled LaborBrain Drain

Page 13: The Nature of Costs Explicit Costs Accounting Costs Economic Costs Implicit Costs Alternative or Opportunity Costs Relevant Costs Incremental Costs Sunk.

Cost-Volume-Profit AnalysisTotal Revenue = TR = (P)(Q)

Total Cost = TC = TFC + (AVC)(Q)

Breakeven Volume TR = TC

(P)(Q) = TFC + (AVC)(Q)

QBE = TFC/(P - AVC)

Page 14: The Nature of Costs Explicit Costs Accounting Costs Economic Costs Implicit Costs Alternative or Opportunity Costs Relevant Costs Incremental Costs Sunk.

Cost-Volume-Profit AnalysisP = 40

TFC = 200

AVC = 5

QBE = 40

Page 15: The Nature of Costs Explicit Costs Accounting Costs Economic Costs Implicit Costs Alternative or Opportunity Costs Relevant Costs Incremental Costs Sunk.

Operating LeverageOperating Leverage = TFC/TVC

Degree of Operating Leverage = DOL

% ( )

% ( )

Q P AVCDOL

Q Q P AVC TFC

Page 16: The Nature of Costs Explicit Costs Accounting Costs Economic Costs Implicit Costs Alternative or Opportunity Costs Relevant Costs Incremental Costs Sunk.

Operating LeverageTC’ has a higher DOL than TC and therefore a higher QBE


Related Documents
Sunk costs and contestability - Stackelberg - Spence - Dixit

Sunk costs and contestability - Stackelberg - Spence - Dixit

Category: Documents
Endogenous Sunk Costs and the Geographic Distribution … III/III... · Endogenous Sunk Costs and the Geographic Distribution of Brand Shares in Consumer Package Goods Industries

Endogenous Sunk Costs and the Geographic Distribution …...

Category: Documents
Regulatory Endogenous Sunk Costs

Regulatory Endogenous Sunk Costs

Category: Documents
Chapter 6: Cognitive Dissonance. Irrationality in decision making: sunk costs.

Chapter 6: Cognitive Dissonance. Irrationality in decision.....

Category: Documents
Advertising, Sunk Costs, and Barriers to Entry Author(s): Ioannis

Advertising, Sunk Costs, and Barriers to Entry Author(s):...

Category: Documents
CTC 475 Review Time Value of Money Cash Flow Diagrams/Tables Cost Definitions: Life-Cycle Costs Life-Cycle Costs Past and Sunk Costs Past and Sunk.

CTC 475 Review Time Value of Money Cash Flow...

Category: Documents
Advertising, Sunk Costs, and Barriers to Entry Author(s): Ioannis N. … · 2011-02-18 · ADVERTISING, SUNK COSTS, AND BARRIERS TO ENTRY loannis N. Kessides* Abstract-This paper

Advertising, Sunk Costs, and Barriers to Entry Author(s):...

Category: Documents
Endogenous Sunk Costs and the Geographic …public.econ.duke.edu/~staff/wrkshop_papers/2005_Spring/...Endogenous Sunk Costs and the Geographic Distribution of Brand Shares in Consumer

Endogenous Sunk Costs and the Geographic...

Category: Documents
Sunk costs hysteresis in Spanish manufacturing exports

Sunk costs hysteresis in Spanish manufacturing exports

Category: Documents
Sunk costs, uncertainty and market exit: A real … · Sunk costs, uncertainty and market exit: ... in the presence of significant sunk costs, ... persist in an industry if they have

Sunk costs, uncertainty and market exit: A real … · Sunk...

Category: Documents
Costs Life cycle costs Past and sunk costs Future and opportunity costs Direct, indirect and overhead costs Fixed and variable costs Average and marginal.

Costs Life cycle costs Past and sunk costs Future and...

Category: Documents
ARE JUDGES SMARTER THAN ECONOMISTS? SUNK COSTS, …...entry in this context should have several features. First, it should have positive sunk costs. Second, the model must have a competitive

ARE JUDGES SMARTER THAN ECONOMISTS? SUNK COSTS, …...entry....

Category: Documents