Managerial Economics - Cost Analysis
Cost Determinants - Cost Analysis
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The cost of production of goods and services depends on various input factors used by the organization and it differs from firm to firm.
Cost
Determinants
The cost of production of goods and services depends on various input factors used by the organization and it differs from firm to firm. The major cost determinants are:
1.Level of output: The cost of production varies according to the quantum of output. If the size of production is large then the cost of production will also be more.
2.Price of input factors: A rise in the cost of input factors will increase the total cost of production.
3.Productivities of factors of production: When the productivity of the input factors is high then the cost of production will fall.
4.Size of plant: The cost of production will be low in large plants due to mass production with mechanization.
5.Output stability: The overall cost of production is low when the output is stable over a period of time.
6.Lot size: Larger the size of production per batch then the cost of production will come down because the organizations enjoy economies of scale.
7.Laws of returns: The cost of production will increase if the law of diminishing returns appliesin the firm.
8.Levels of capacity utilization: Higher the capacity utilization, lower the cost of production
9.Time period: In the long run cost of production will be stable.
10.Technology: When the organization follows advanced technology in their process then the cost of production will be low.
11.Experience: over a period of time the experience in production process will help the firm to reduce cost of production.
12.Process of range of products: Higher the range of products produced, lower the cost of production.
13.Supply chain and logistics: Better the logistics and supply chain, lower the cost of production.
14.Government incentives: If the government provides incentives on input factors then the cost of production will be low.
The cost of production of goods and services depends on various input factors used by the organization and it differs from firm to firm. The major cost determinants are:
1.Level of output: The cost of production varies according to the quantum of output. If the size of production is large then the cost of production will also be more.
2.Price of input factors: A rise in the cost of input factors will increase the total cost of production.
3.Productivities of factors of production: When the productivity of the input factors is high then the cost of production will fall.
4.Size of plant: The cost of production will be low in large plants due to mass production with mechanization.
5.Output stability: The overall cost of production is low when the output is stable over a period of time.
6.Lot size: Larger the size of production per batch then the cost of production will come down because the organizations enjoy economies of scale.
7.Laws of returns: The cost of production will increase if the law of diminishing returns appliesin the firm.
8.Levels of capacity utilization: Higher the capacity utilization, lower the cost of production
9.Time period: In the long run cost of production will be stable.
10.Technology: When the organization follows advanced technology in their process then the cost of production will be low.
11.Experience: over a period of time the experience in production process will help the firm to reduce cost of production.
12.Process of range of products: Higher the range of products produced, lower the cost of production.
13.Supply chain and logistics: Better the logistics and supply chain, lower the cost of production.
14.Government incentives: If the government provides incentives on input factors then the cost of production will be low.
Tags : Managerial Economics - Cost Analysis
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