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Managerial Economics - Cost Analysis

Introduction of Cost Analysis

   Posted On :  29.05.2018 12:39 am

A production function tells us how much output a firm can produce with its existing plant and equipment.

Introduction Cost Analysis

A production function tells us how much output a firm can produce with its existing plant and equipment. The level of output depends on prices and costs. The most desirable rate of output is the one that maximizes total profit that is the difference between total revenue and total cost.
 
Entrepreneurs pay for the input factors- Wages for labour, price for raw material, rent for building hired, interest for borrowed money. All these costs are included in the cost of production. The economist’s concept of cost of production is different from accounting.
 
This chapter helps us to understand the basic cost concepts and the cost output relationship in the short and long runs. Having looked at input factors in the previous chapter it is now possible to see how the law of diminishing returns affect short run costs.

 

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