Cost and Cost Curves | Business Economics & Finance - B Com PDF Download

 Page 1


COST CURVES
Page 2


COST CURVES
Introduction 
•
The amount spent on the use of factor and non factor 
inputs, inputs is called cost of production. 
•
Cost Function. The relation between output and cost is 
cost function. Cost functions are derived functions. These 
are derived from the production function. Enables the firm 
to determine its profit maximizing or loss minimizing 
output. Helps a firm in deciding whether it is profitable for 
it to continue production. Aids in estimating its profit – 
both per unit as well as total.
Page 3


COST CURVES
Introduction 
•
The amount spent on the use of factor and non factor 
inputs, inputs is called cost of production. 
•
Cost Function. The relation between output and cost is 
cost function. Cost functions are derived functions. These 
are derived from the production function. Enables the firm 
to determine its profit maximizing or loss minimizing 
output. Helps a firm in deciding whether it is profitable for 
it to continue production. Aids in estimating its profit – 
both per unit as well as total.
Concepts of Cost/Types of Cost.
•
Money cost. The amount spent in terms of money for 
production of a commodity is called money cost. Money 
cost includes the following expenses. (i) Wages paid to 
labourers (ii) Interest on Loans (iii) Rent paid for 
premises (iv) Expenditure on raw materials and 
machinery (v) Insurance (vi) Taxes (vii) Payments for 
power, light, fuel. (viii) Transportation charges.
Page 4


COST CURVES
Introduction 
•
The amount spent on the use of factor and non factor 
inputs, inputs is called cost of production. 
•
Cost Function. The relation between output and cost is 
cost function. Cost functions are derived functions. These 
are derived from the production function. Enables the firm 
to determine its profit maximizing or loss minimizing 
output. Helps a firm in deciding whether it is profitable for 
it to continue production. Aids in estimating its profit – 
both per unit as well as total.
Concepts of Cost/Types of Cost.
•
Money cost. The amount spent in terms of money for 
production of a commodity is called money cost. Money 
cost includes the following expenses. (i) Wages paid to 
labourers (ii) Interest on Loans (iii) Rent paid for 
premises (iv) Expenditure on raw materials and 
machinery (v) Insurance (vi) Taxes (vii) Payments for 
power, light, fuel. (viii) Transportation charges.
Real Cost
?
The mental and physical efforts and sacrifices 
undergone with a view to producing 
commodity are its real cost. Concept of real 
cost is a subjective concept (changing from 
person to person)
        
Page 5


COST CURVES
Introduction 
•
The amount spent on the use of factor and non factor 
inputs, inputs is called cost of production. 
•
Cost Function. The relation between output and cost is 
cost function. Cost functions are derived functions. These 
are derived from the production function. Enables the firm 
to determine its profit maximizing or loss minimizing 
output. Helps a firm in deciding whether it is profitable for 
it to continue production. Aids in estimating its profit – 
both per unit as well as total.
Concepts of Cost/Types of Cost.
•
Money cost. The amount spent in terms of money for 
production of a commodity is called money cost. Money 
cost includes the following expenses. (i) Wages paid to 
labourers (ii) Interest on Loans (iii) Rent paid for 
premises (iv) Expenditure on raw materials and 
machinery (v) Insurance (vi) Taxes (vii) Payments for 
power, light, fuel. (viii) Transportation charges.
Real Cost
?
The mental and physical efforts and sacrifices 
undergone with a view to producing 
commodity are its real cost. Concept of real 
cost is a subjective concept (changing from 
person to person)
        
Accounting Cost or Business cost
•
Accounting cost refer to cash payments which firms 
make for factor (land, labour, Capital) and non-
factor inputs (Advertising), Depreciation and other 
booking entries.