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Managerial Economics Ashwani Panesar, Lovely Professional University
Notes Unit 8: Cost Analysis
CONTENTS
Objectives
Introduction
8.1 Cost Concepts
8.2 Fixed and Variable Costs
8.3 Short Run and Long Run Costs
8.3.1 Short Run Average Costs and Output
8.3.2 Short Run Marginal Cost (MC) and Output
8.3.3 Costs in the Long Run
8.4 Total Cost, Average Cost and Marginal Cost
8.5 Economies of Scale
8.6 Economies of Scope
8.7 Types of Revenue Curves and their Applications
8.8 Summary
8.9 Keywords
8.10 Self Assessment
8.11 Review Questions
8.12 Further Readings
Objectives
After studying this unit, you will be able to:
Discuss various types of costs
Explain the behaviour of short run and long run cost curves
State the concept of Economies of scales and economies of scope
Discuss the revenue curves and their applications
Introduction
The cost which a firm incurs in the process of production of its goods and services is an important
variable for decision making. Total cost together with total revenue determines the profit level
of a business concern. In order to maximise profits a firm endeavours to increase its revenue and
lower its costs. To this end, managers try to produce optimum levels of output, use the least cost
combination factors of production, increase factor productivities and improve organisational
efficiency.
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