Cost of Production PDF

**College: \_\_[BUSINESS EDUCATION]** **Campus :\_\_[Bayombong\_\_\_\_\_]** **DEGREE PROGRAM** **COURSE NO.** **SPECIALIZATION** **COURSE TITLE** **YEAR LEVEL** **TIME FRAME** **WEEK NO** **IM NO.** I. **UNIT TITLE/CHAPTER TITLE** **COST OF PRODUCTION** II. **LESSON TITLE** III. **LESS...

**College: \_\_[BUSINESS EDUCATION]** **Campus :\_\_[Bayombong\_\_\_\_\_]** **DEGREE PROGRAM** **COURSE NO.** **SPECIALIZATION** **COURSE TITLE** **YEAR LEVEL** **TIME FRAME** **WEEK NO** **IM NO.** I. **UNIT TITLE/CHAPTER TITLE** **COST OF PRODUCTION** II. **LESSON TITLE** III. **LESSON OVERVIEW** IV. **DESIRED LEARNING OUTCOMES** V. **LESSON CONTENT** The producer in this chapter is presented as one whose objective is profit maximization. To attain this objective, the producer is equipped with explicit concepts in order to arrive at a more refined and rational decision. Moreover, these concepts help in understanding market behavior as discussed in the succeeding chapters. The framework of discussion is the concept of business, which identifies cost and profit. This definition serves to identify the components of cost-output as well as revenue-output relationships, which in turn lead to the concept of maximum profit. From the point of view of an entrepreneur, a business or firm exists to reward entrepreneurial efforts. To render this reward, the firm undergoes a production process the outcome of which serves the consumers or buyers. Production embraces the whole process of making product available consumer, which therefore includes the final process of distribution. In so doing, the firm pays a price by using its stock of assets and the value foregone is called cost. At the end of the said process, the firm earns revenues through the sale of goods and services. The positive net effect of the difference between revenue and cost is called profit and accrues as said reward to the entrepreneur. Hence, all profit is a creation of entrepreneurship. With the revenues earned, the firm can recover what it foregoes in the process of production and the excess is simply the profit created. To retain this profit, is to increase negative difference between revenue and cost results in a loss which erodes this stock of assets. - [Opportunity Cost Principle] - the economic cost of an input used in a production process is the value of output sacrificed elsewhere. The opportunity cost of an input is the value of foregone income in best alternative employment. - Implicit vs. Explicit Costs - [Explicit costs] -- costs paid in cash - [Implicit cost] -- imputed cost of self-owned or self employed resources based on their opportunity costs. **7 Cost Concepts (Short-run)** 1. Total Fixed Cost (TFC) 2. Total Variable Cost (TVC) 3. Total Cost (TC=TVC+TFC) 4. Average Fixed Cost (AFC=TFC/Q) 5. Average Variable Cost (AVC=TVC/Q) 6. Average Total Cost (AC=AFC+AVC) 7. Marginal Cost (MC= ∆AVC/∆Q **Short Run Analysis** - ***Total fixed cost** (TFC)* is more commonly referred to as \"sunk cost\" or \"overhead cost.\" - Examples: include the payment or rent for land, buildings and machinery. - The fixed cost is independent of the level of output produced. - Graphically, depicted as a horizontal line - ***Total variable cost** (TVC)* refers to the cost that changes as the amount of output produced is changed. - Examples - purchases of raw materials, payments to workers, electricity bills, fuel and power costs. - Total variable cost increases as the amount of output increases. - If no output is produced, then total variable cost is zero; - the larger the output, the greater the total variable cost. - ***Total cost*** (TC) is the sum of total fixed cost and total variable cost - TC=TFC+TVC - As the level of output increases, total cost of the firm also increases. TP FC VC TC MC AFC AVC AC ---- ----- ----- ----- ---- ------- ------ ------- 0 100 0 100 0 0 1 100 30 130 30 100 30 130 2 100 50 150 20 50 25 75 3 100 60 160 10 33.33 20 53.3 4 100 65 165 5 25 16.3 41.25 5 100 75 175 10 20 15 35 6 100 95 195 20 16.67 15.8 32.5 7 100 125 225 30 14.28 17.9 32.14 8 100 165 265 40 12.5 20.6 33.12 9 100 215 315 50 11.11 23.9 35 10 100 275 375 60 10 27.5 37.5 VI. **LEARNING ACTIVITIES** VII. **ASSIGNMENT** VIII. **REFERENCES** Catelo, Ma. Angeles O (1999). Economics 102 Reference Workbook. Department of economics, UP Los Banos. Pagoso, C. et. al. (2014). Introductory Microeconomics. Rex Book Store Silon, T. et.al. (2009). Manual for Economics +-----------------------------------------------------------------------+ | Numbering the IM No.: IM-CCCCCC-SSSSSS-NNNN-NNNN | | | | School Year | | | | Semester | | | | Course Number | | | | e.g.: | | | | IM-COURSE NO-SEMESTER-SCHOOL YEAR | | | | IM-MCB180-1STSEM-2020-2021 | +-----------------------------------------------------------------------+