Thus in the long run all factors become variable. The long-run cost-output relations therefore imply the relationship between the total cost and the total output. In the long-run cost-output relationship is influenced by the law of returns to scale. In the long run a firm has a number of alternatives in regards to the scale of operations.
The long-run cost-output relations therefore imply the relationship between the total cost and the total output. In the long-run cost-output relationship is influenced by the law of returns to scale. In the long run a firm has a number of alternatives in regards to the scale of operations.
The cost concepts made use of in the cost behavior are Total cost, Average cost, and Marginal cost. Total cost is the actual money spent to produce a particular quantity of output. Total Cost is the summation of Fixed Costs and Variable Costs.
1. Cost-Output Relationship in the Short-Run. The cost concepts made use of in the cost behavior are Total cost, Average cost, and Marginal cost. Total cost is the actual money spent to produce a particular quantity of output. Total Cost is the summation of Fixed Costs and Variable Costs.
In economics theory, the short-run is defined as that period during which the physical capacity of the firm is fixed and the output can be increased only by using the existing capacity allows to bring changes in output by physical capacity of the firm.
The short-run average cost (SAC) curve applies to only one plant whereas the long-run average cost (LAC) curve takes in to consideration many plants.
Output is an important factor, which influences the cost. The cost-output relationship plays an important role in determining the optimum level of production. Knowledge of the cost-output relation helps the manager in cost control, profit prediction, pricing, promotion etc. The relation between cost and its determinants is technically described as ...
A proper understanding of the nature and behavior of costs is a must for regulation and control of cost of production. The cost of production depends on money forces and an understanding of the functional relationship of cost to various forces will help us to take various decisions. Output is an important factor, which influences the cost.
The cost concepts made use of in the cost behavior are Total cost, Average cost, and Marginal cost.
It can be arrived at by dividing the change in total cost by the change in total output.
Thus the table shows an increasing returns or diminishing cost in the first stage and diminishing returns or diminishing cost in the second stage and followed by diminishing returns or increasing cost in the third stage.