ECONOMICS PRESENTATION

FIRMS, COSTS, REVENUE AND OBJECTIVES

Learning Objectives

1. Define TC, ATC, FC, VC, AFC, AVC. 2. Calculate the different types of costs. 3. Define Total and Average Revenue. 4. Draw and interpret diagrams. 5. Decsribe how sales affect revenue. 6. Objectives of a firm in an economy.

Think

Assume yourself as an entrepreneur setting out your foot in the market. Contemplate on the following questions. - What product you wish to sell? - At what price shall you sell? - What is the cost of making that product? - Is your cost of making that product >> than the price you sell at?

Average Total Cost [ATC/AC]- also called as Unit cost. - Per unit cost. - Total Cost / Qutput

Total Cost [TC]- Cost of producing a given output. - Higher output = Higher Total cost (TC) - Producing more quantity of output requires more resources - TC = FC + VC

Fixed Costs [FC[ - Costs that do not change with output in the short-run. - Even at zero level of output, one incurs FC. - Imagine you took a property on rent for 20k per month. Due to unforeseen circumstances, you have to shut down your production operations for a month. Will you be excused from not paying a month's rent? - You took a loan to start your business, if your business shuts down due to losses. You still continue to pay the loan and interest on it. Right? The shut down of your business does not affect this cost of yours. - Fixed costs are incurred no matter what your output is.

Fixed costs are also known as overheads or indirect costs.

Total Cost, Average Cost, Fixed Cost

The cost at zero level of output = Fixed cost for all units of output.

As the total number of units of the good produced increases, the average fixed cost decreases because the same amount of fixed costs is being spread over a larger number of units of output.

Average Fixed Cost [AFC]

is fixed cost divided by output. AFC = FC/Q

- Costs that change with the level of output.- Also called as Direct costs. - Increase in production of cars leads to increase in the demand for the raw materials used in the making of cars, wages for the workers etc which increases the cost of producing a car ==== Variable cost. - Higher Output = Higher variable costs. - Rises slowly first then rises rapidly.

Variable Costs

Average Variable Cost [AVC]

is variable cost divided by output. AVC = VC/Q

A bakery is faced with the following costs - flour, yeast, rent, insurance, worker wages. Decide which are fixed and variable costs.

Worker Wages

- Semi Variable in nature. - Workers have to be paid in a minimum wage (Minimum wage rate policy) + what they have contributed to the production. - This is a combination of Fixed + Variable.

Total Cost [TC] = Total Fixed Cost [TFC] + Total Variable Cost [TVC]

Long-run production function represents a period where all inputs can be adjusted, allowing for greater flexibility in production choices.

LONG run

The short-run production function refers to a period where at least one input is fixed, limiting the ability to adjust production levels.

Short run

Equations to remember...

• TC = TFC + TVC
• TFC = FC/Q
• TVC = VC/Q
• AC = TC/Q

Did you know that Genially allows you to share your creation directly, with no need to download? All ready for your audience to view it from any device and share it anywhere.

Interactivity and animation can be your best allies when creating tables, infographics, or graphs that help provide context for the information and simplify the data in order to communicate it to your audience. We are visual beings and we find it easier to ‘read’ images than to read a written text.

Visual communication is a key tool. We find it easier to ‘read’ images than to read a written text. Disciplines such as ‘Visual Thinking’ facilitate the taking of visually rich notes through the use of images, graphs, infographics, and simple drawings.