Economic cost Accounting cost Implicit Opportunity Cost
Accounting costs s are visible and or directly quantifiable costs
ex raw materials labour
Economic costs are estimated by adding on to accounting costs the implicit
Explicit cost involve transfer of money and can be recorded on a balanceShee
ex buying new buildings
paying500 staff chlorine
buying litres of
Implicit cost related to the opportunity cost that leads to lower income
usually not recorded
ex giving workers a day off will lead to dropin sales and income
Fixed cost
costs that do not vary with the level of output
costs exist in the short run
ex Rent Advertising Insurance Interest Payment Wages
Variable cost
costs that vary with the level of output
costs exits in the short run and long run
ex Rawmaterials taxes commissions lityou hit a goal you get payed a certain amount
short run
period during which one or more factors of production are fixed
ex making decisions relating to current production
Long run
when all factors are variable no fixed factors
when you are planning for future
ex should we buy new machinery or not
Diminishing Marginal Productivity
when at least one factor of production remains fixed and additional un
of production labour are added at first
of a variable factor
marginal product will increase but then comes to a point
where it begins to decrease
also known as the law of diminishing returns
, Nso n Wn is he 1 w I ins j
pgiunrtuewfenre theotwh.ee
Marginal Outputs Outputs
Product
Average Total Output
of labour
Product Unit
Ex 3 In 5 workers
MRAP
4 8
Hence APfalls from 8 to 7
If then AP rises
MP AP
It MP AP
then AP does not change
It MPs AP then AP falls
Exit
MP AP
85 80
Hence AP rises to 81.6
s
Accounting costs s are visible and or directly quantifiable costs
ex raw materials labour
Economic costs are estimated by adding on to accounting costs the implicit
Explicit cost involve transfer of money and can be recorded on a balanceShee
ex buying new buildings
paying500 staff chlorine
buying litres of
Implicit cost related to the opportunity cost that leads to lower income
usually not recorded
ex giving workers a day off will lead to dropin sales and income
Fixed cost
costs that do not vary with the level of output
costs exist in the short run
ex Rent Advertising Insurance Interest Payment Wages
Variable cost
costs that vary with the level of output
costs exits in the short run and long run
ex Rawmaterials taxes commissions lityou hit a goal you get payed a certain amount
short run
period during which one or more factors of production are fixed
ex making decisions relating to current production
Long run
when all factors are variable no fixed factors
when you are planning for future
ex should we buy new machinery or not
Diminishing Marginal Productivity
when at least one factor of production remains fixed and additional un
of production labour are added at first
of a variable factor
marginal product will increase but then comes to a point
where it begins to decrease
also known as the law of diminishing returns
, Nso n Wn is he 1 w I ins j
pgiunrtuewfenre theotwh.ee
Marginal Outputs Outputs
Product
Average Total Output
of labour
Product Unit
Ex 3 In 5 workers
MRAP
4 8
Hence APfalls from 8 to 7
If then AP rises
MP AP
It MP AP
then AP does not change
It MPs AP then AP falls
Exit
MP AP
85 80
Hence AP rises to 81.6
s
