Classification of enterprise costs implies their division into two types: fixed and variable. change in proportion to changes in production volumes. In practice, costs of one type may be variable for one enterprise, but constant for another.

Variable production costs

The growth or reduction of this variable cost depends on the dynamics of production volumes. Another name - proportional costs - is due to the fact that they increase and decrease in proportion to the increase or decrease in volumes production activities.
This type of costs includes:

• piecework wage costs;
• expenses for the purchase of raw materials;
• electricity costs;
• transport, trade commissions and other expenses.

Fixed production costs

The growth or reduction of this type of costs is practically not affected by production dynamics, but only up to a certain point. TO fixed costs, which can also be called fixed or disproportionate, include:

• rent;
• payment of utilities;
• Administrative expenses;
• interest on loans;
• deductions for depreciation;
• salaries of managers at different levels.

How do variable and fixed costs change?

VARIABLE COSTS

VARIABLE COSTS

(variable cost) Variable costs are that part of costs that changes depending on the level of output. They are the opposite of fixed costs, which are necessary to make output possible at all; they do not depend on the level of output. It should be kept in mind that this is a fundamental difference. The price of a resource used may be stable over the years, but it is still a variable cost if the quantity of that resource used depends on output. The price of other inputs may change, but they will still be considered fixed costs if the amount of inputs used does not depend on the level of output.

Economy. Dictionary. - M.: "INFRA-M", Publishing House "Ves Mir". J. Black. General editor: Doctor of Economics Osadchaya I.M.. 2000 .

Economic dictionary. 2000 .

See what “VARIABLE COSTS” is in other dictionaries:

- (variable costs) See: overhead costs. Business. Dictionary. M.: INFRA M, Ves Mir Publishing House. Graham Betts, Barry Brindley, S. Williams and others. General editor: Ph.D. Osadchaya I.M.. 1998 ... Dictionary of business terms

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Variable costs- (costs) Costs directly proportional to production volume. If output is zero, variable costs are also zero... Investment Dictionary

variable costs- Costs that are directly related to production volume, such as direct materials or labor required to create a finished product. See also fixed cost... Financial and investment explanatory dictionary

Variable costs- costs, the size of which depends on the volume of production of the company ... Economics: glossary

Variable costs are types of expenses, the value of which changes in proportion to changes in production volumes. They are contrasted with fixed costs, which add up to total costs. The main sign by which one can determine... ... Wikipedia

Variable costs- monetary and opportunity costs that change in response to changes in the volume of output. Together with fixed costs they form total costs. To P.i. include costs for wages, fuel, materials, etc... Dictionary of Economic Theory

variable costs- see variable capital... Dictionary of many expressions

Costs directly related to production volume, varying depending on volume, for example, costs of materials, raw materials, semi-finished products, piecework wages. Economic Dictionary. 2010… Economic dictionary

Costs directly related to production volume, varying depending on volume, for example, costs of materials, raw materials, semi-finished products, piecework wages. Terminological dictionary of banking and financial terms... ... Financial Dictionary

Private and public costs

The essence of production costs. Constants, variables. Average and marginal costs

Elasticity of supply

Price elasticity of supply is the degree of change in the quantity of goods and services supplied in response to changes in their price. The process of increasing elasticity of supply in the long and short term is revealed through the concepts of instantaneous, short-term and long-term equilibrium.

The supply elasticity coefficient shows the relative change in quantity supplied when price changes by 1%. The calculation is completely similar to the calculation of the coefficient of elasticity of demand relative to price, but Q will denote the size of supply.

Inelastic supply is a supply for which the percentage change in price is greater than the percentage change in quantity supplied. For inelastic supply, the elasticity coefficient is less than one

Production costs- these are expenses, monetary expenditures that must be made to create a product. For an enterprise (firm), they act as payment for acquired factors of production.

Costs can be viewed from different perspectives. If they are examined from the point of view of an individual firm (individual producer), we are talking about private costs. If costs are analyzed from the point of view of society as a whole, then external effects arise and, as a consequence, the need to take into account social costs.

Let us clarify the concept of external effects. In market conditions, a special purchase and sale relationship arises between the seller and the buyer. At the same time, relationships arise that are not mediated by the commodity form, but have a direct impact on people’s well-being (positive and negative external effects). An example of positive external effects is expenses for R&D or training of specialists; an example of a negative external effect is compensation for damage from environmental pollution.

Social and private costs coincide only if there are no external effects, or if their total effect is equal to zero.

Social costs = Private costs + Externalities

Fixed costs- this is a type of cost that an enterprise incurs within one production cycle. Determined by the enterprise independently. All these costs will be typical for all product production cycles.

Variable costs- these are the types of costs that are transferred to ready product in full.

General costs- those costs incurred by the enterprise during one stage of production.

General = Constants + Variables

Production costs are the costs of purchasing economic resources consumed in the process of producing certain goods.

Any production of goods and services, as is known, is associated with the use of labor, capital and natural resources, which are factors of production whose value is determined by production costs.

Due to limited resources, the problem arises of how best to use them among all rejected alternatives.

Opportunity costs are the costs of producing goods, determined by the cost of the best lost opportunity to use production resources, ensuring maximum profit. The opportunity costs of a business are called economic costs. These costs must be distinguished from accounting costs.

Accounting costs differ from economic costs in that they do not include the cost of factors of production that are owned by the owners of firms. Accounting costs are less than economic costs by the amount of implicit earnings of the entrepreneur, his wife, implicit land rent and implicit interest on the owner’s equity capital. In other words, accounting costs are equal to economic costs minus all implicit costs.

The options for classifying production costs are varied. Let's start by distinguishing between explicit and implicit costs.

Explicit costs are opportunity costs that take the form of cash payments to the owners of production resources and semi-finished products. They are determined by the amount of company expenses to pay for purchased resources (raw materials, materials, fuel, labor, etc.).

Implicit (imputed) costs are the opportunity costs of using resources that belong to the firm and take the form of lost income from the use of resources that are the property of the firm. They are determined by the cost of resources owned by a given company.

The classification of production costs can be carried out taking into account the mobility of production factors. Fixed, variable and total costs are distinguished.

Fixed costs (FC) are costs whose value in the short run does not change depending on changes in production volume. These are sometimes called "overhead" or "sunk costs". Fixed costs include the cost of maintaining production buildings, purchasing equipment, rental payments, interest payments on debts, salaries of management personnel, etc. All these costs must be financed even when the company does not produce anything.

Variable costs (VC) are costs whose value changes depending on changes in production volume. If products are not produced, then they are equal to zero. Variable costs include the costs of purchasing raw materials, fuel, energy, transport services, wages for workers and employees, etc. In supermarkets, payment for the services of supervisors is included in variable costs, since managers can adapt the volume of these services to the number of customers.

Total costs (TC) - the total costs of a company, equal to the sum of its fixed and variable costs, are determined by the formula:

Total costs increase as production volume increases.

Costs per unit of goods produced take the form of average fixed costs, average variable costs and average total costs.

Average fixed cost (AFC) is the total fixed cost per unit of output. They are determined by dividing fixed costs (FC) by the corresponding quantity (volume) of products produced:

Since total fixed costs do not change, when divided by increasing production volume, average fixed costs will fall as the quantity of output increases, because a fixed amount of costs is distributed over more and more units of output. Conversely, as production volume decreases, average fixed costs will increase.

Average variable cost (AVC) is the total variable cost per unit of output. They are determined by dividing variable costs by the corresponding quantity of output:

Average variable costs first fall, reaching their minimum, then begin to rise.

Average (total) costs (ATC) are the total production costs per unit of output. They are defined in two ways:

a) by dividing the sum of total costs by the number of products produced:

b) by summing average fixed costs and average variable costs:

ATC = AFC + AVC.

At the beginning, average (total) costs are high because the volume of output is small and fixed costs are high. As production volume increases, average (total) costs decrease and reach a minimum, and then begin to rise.

Marginal cost (MC) is the cost associated with producing an additional unit of output.

Marginal costs are equal to the change in total costs divided by the change in volume produced, that is, they reflect the change in costs depending on the quantity of output. Since fixed costs do not change, fixed marginal costs are always zero, i.e. MFC = 0. Therefore, marginal costs are always marginal variable costs, i.e. MVC = MC. It follows from this that increasing returns to variable factors reduce marginal costs, while decreasing returns, on the contrary, increase them.

Marginal costs show the amount of costs that a firm will incur when increasing production by the last unit of output, or the amount of money that it will save if production decreases by a given unit. When the additional cost of producing each additional unit of output is less than the average cost of the units already produced, producing that next unit will lower the average total cost. If the cost of the next additional unit is higher than average cost, its production will increase average total cost. The above applies to a short period.

In practice Russian enterprises and in statistics the concept of “cost” is used, which is understood as the monetary expression of the current costs of production and sales of products. Costs included in the cost include costs for materials, overheads, wage, depreciation, etc. The following types of cost are distinguished: basic - the cost of the previous period; individual - the amount of costs for the manufacture of a specific type of product; transportation - costs of transporting goods (products); products sold, current - assessment of sold products at restored cost; technological - the amount of costs for organizing the technological process of manufacturing products and providing services; actual - based on actual costs for all cost items for a given period.

24. Marginal cost and marginal revenue under conditions perfect competition.

In a perfectly competitive market, the price of a firm's product does not depend on the volume of its production. To increase sales, a firm can only expand production, but is forced to take the market price for its product as given. Therefore, the demand schedule for the company's products is a horizontal line: at the market price, it can sell any quantity of goods. The firm's total income is the product of the quantity of goods and its price. Its total costs are the costs of workers and capital. Its profit is the difference between total income and total costs. The goal of the company is to maximize profits in conditions where only the size of production, but not the price, depends on it. If a firm finds itself in a perfectly competitive market, it has at its disposal two ways to determine the profit-maximizing production size.

Method 1.Compare total revenue with total costs at different levels of production. According to the law of diminishing returns, in the short run the marginal product of a variable factor of production initially increases, but upon reaching a certain volume of production it begins to decrease. As production increases, total costs increase, since the firm needs to hire more workers, and when production decreases, they decrease, because fewer workers are needed. Therefore, the relationship between income and costs depends on production volumes:

when producing a small quantity of a product, the costs of its production will most likely be higher than income and the company will incur a loss;

When a certain significant volume of production is achieved, the firm's income will exceed costs and it will make a profit;

With a further increase in production, due to the diminishing returns of the variable factor, income will decrease and, ultimately, costs will again exceed income and the company will again be at a loss.

For example, when producing less than 6 units. costs are higher than income and the company incurs a loss; from 7 to 14 units. - costs less income and the company makes a profit; over 15 units - the company is at a loss again. To maximize profit, it is necessary to determine at what volume of production in the range from 7 to 14 units. revenues will exceed costs by the greatest amount. Then the profit will be maximum. For example, when producing 12 units. This is the manufacturer’s optimum, since the production of both 11 and 13 units. product leads to a reduction in profits.

Method 2.Find the volume of production at which marginal revenue and marginal cost are equal. However, calculating the amount of revenue, costs and profit for all production volumes when profits are positive can be inconvenient. The firm can increase profits and will expand production until its income from each additional unit of goods sold is higher than the costs of its production. Any firm can calculate its marginal revenue and marginal cost. For example, for the first 12 units. of a product, the marginal income is 5 thousand rubles, and the marginal costs increase from 1.5 to 5 thousand rubles. those. always less than marginal revenue. As long as this is the case, the company will increase production. However, already the production of the 13th unit of goods requires costs in the amount of 6.5 thousand rubles, despite the fact that the marginal income remains the same - at the level of 5 thousand rubles. With production growth exceeding 12 units. The company's profits will only decline. Therefore, a rational manufacturer will not expand production beyond 12 units. goods. When a firm's marginal revenue is compared to its marginal cost, it earns maximum profit.

If a company sells goods for 10 thousand rubles. per unit, then with an increase in production, for example, from 11 to 12 units. her full income will increase from 110 to 120 thousand rubles, and the marginal income will be 120 - 110/12-11 = 10 thousand rubles. Obviously, marginal revenue will be equal to the price of the product.

Competitive firm to receive maximum profit must produce such quantity of a good that its marginal cost is equal to marginal income, and sell it at the market price, MC = MR = R.

The economic profit of a competitive firm in the long run is zero if price equals average cost. But the competitive firm still receives normal profit, which is included in costs.

25. Cost minimization and the law of diminishing returns

Cost minimization is a premise of the theory of behavior, which consists in the fact that any person or firm will strive, given all other factors, equal conditions, purchase a certain amount of goods or inputs into production at the lowest cost. The theory of producer behavior states that, under certain assumptions, a cost function can be used to find a single combination that minimizes the cost of inputs for each output level. Thus, based on the assumption that firms and entrepreneurs strive to minimize costs, their behavior can be predicted. It can be shown that the level of production volume that brings the company profit maximization is also the level of cost minimization; however, it should not be assumed that firms actually maximize profits, which is another premise of behavioral theory.

Firms strive to minimize costs both when choosing factors of production and when using them in the production process.

Minimizing Costs is the desire of any entrepreneur or company to conduct its activities with minimal costs all other things being equal.

Direct costs

It is legitimate to include in economic costs

Beginning of the form

labor costs for workers;
rent that can be received when renting out your own production premises;
costs of paying bills to third parties for work (services) performed by them;

End of form

2. Basic costs

Beginning of the form

End of form

Beginning of the form

costs associated with the production of only this type of product;
costs associated with technological process and costs associated with the maintenance and operation of labor tools;
maintenance and management costs production process;

End of form

The division of costs into fixed and variable is the basis of a method that is widespread in economics. It was first proposed in 1930 by engineer Walter Rautenstrauch as a planning method known as the critical production schedule or break-even schedule (Fig. 19).

The break-even chart in its various modifications is widely used in modern economy. The undoubted advantage of this method is that with its help you can quickly obtain a fairly accurate forecast of the main performance indicators of an enterprise when market conditions change.

When constructing a break-even schedule, it is assumed that there are no changes in prices for raw materials and products during the period for which planning is carried out; fixed costs are considered constant over a limited range of sales volumes; variable costs per unit of output do not change as sales volume changes; sales are carried out quite evenly.

When plotting a graph, the horizontal axis shows the volume of production in units of products or as a percentage of use production capacity, and vertically - production costs and income. Costs are deferred and divided into fixed (POI) and variable (PI). In addition to the lines of fixed and variable costs, the graph displays gross costs (VI) and revenue from sales of products (VR).

The point of intersection of the revenue and gross cost lines represents the break-even point (K). This point is interesting because with the corresponding volume of production and sales (V kr), the enterprise has neither profit nor loss. The production volume corresponding to the break-even point is called critical. When the production volume is less than critical, the enterprise cannot cover its costs with its revenue and, therefore, the result of its activities is losses. If the volume of production and sales exceeds the critical level, the enterprise makes a profit.

The break-even point can be determined and analytical method.

Revenue from product sales is determined by the expression

Where POI– fixed costs; PI – variable costs; P- profit.

If we take into account that at the break-even point profit is zero, then the point of critical production volume can be found using the formula

Sales revenue is the product of sales volume and product price. The total amount of variable costs can be calculated as the product of variable costs per unit of production and the volume of production corresponding to sales volume. Since at the break-even point the volume of production (sales) is equal to the critical volume, the previous formula takes the following form:

Where C– unit price; SPI– variable costs per unit of production; In kr- critical release.

Using break-even analysis, you can not only calculate the critical production volume, but also the volume at which the planned (target) profit can be obtained. This method allows you to choose the best option when comparing several technologies, etc.

The benefits of dividing costs into fixed and variable parts are used by many modern enterprises. Along with this, cost accounting is widely used. full cost and their corresponding grouping.

Test control

1. If fixed costs increase

critical production volume decreases;
critical production volume increases;
this does not affect the critical production volume in any way;

2. When using new equipment, it is possible to increase the volume of production at the enterprise. Will the unit cost of production change if variable costs per unit of production do not change?

the cost will decrease;
the cost will increase;
the cost will not change;

Cost price- the initial cost of the costs incurred by the enterprise for the production of a unit of product.

Price- the monetary equivalent of all types of costs including some types of variable costs.

Price- the market equivalent of the generally accepted cost of the product offered.

Production costs- these are expenses, monetary expenditures that must be made to create. For (the company) they act as payment for purchased goods.

Private and public costs

Costs can be viewed from different perspectives. If they are examined from the point of view of an individual firm (individual producer), we are talking about private costs. If costs are analyzed from the point of view of society as a whole, then, as a consequence, there arises the need to take into account social costs.

Let us clarify the concept of external effects. In market conditions, a special purchase and sale relationship arises between the seller and the buyer. At the same time, relationships arise that are not mediated by the commodity form, but have a direct impact on people’s well-being (positive and negative external effects). An example of positive external effects is expenses for R&D or training of specialists; an example of a negative external effect is compensation for damage from environmental pollution.

Social and private costs coincide only if there are no external effects, or if their total effect is equal to zero.

Social costs = Private costs + Externalities

Fixed Variables and Total Costs

Fixed costs- this is a type of cost that an enterprise incurs within one. Determined by the enterprise independently. All these costs will be typical for all product production cycles.

Variable costs- these are types of costs that are transferred to the finished product in full.

General costs- those costs incurred by the enterprise during one stage of production.

General = Constants + Variables

Opportunity Cost

Accounting and economic costs

Accounting costs- this is the cost of the resources used by the company in the actual prices of their acquisition.

Accounting costs = Explicit costs

Economic costs- this is the cost of other benefits (goods and services) that could be obtained with the most profitable possible alternative use of these resources.

Opportunity (economic) costs = Explicit costs + Implicit costs

These two types of costs (accounting and economic) may or may not coincide with each other.

If resources are purchased in a free competitive market, then the actual equilibrium market price paid for their acquisition is the price of the best alternative (if this were not the case, the resource would go to another buyer).

If resource prices are not equal to equilibrium due to market imperfections or government intervention, then actual prices may not reflect the cost of the best rejected alternative and may be higher or lower than opportunity costs.

Explicit and implicit costs

From the division of costs into alternative and accounting costs follows the classification of costs into explicit and implicit.

Explicit costs are determined by the amount of expenses for paying for external resources, i.e. resources not owned by the firm. For example, raw materials, materials, fuel, work force etc. Implicit costs are determined by the cost of internal resources, i.e. resources owned by the firm.

An example of an implicit cost for an entrepreneur would be the salary that he could receive as an employee. For the owner of capital property (machinery, equipment, buildings, etc.), previously incurred expenses for its acquisition cannot be attributed to the explicit costs of the present period. However, the owner incurs implicit costs, since he could sell this property and put the proceeds in the bank at interest, or rent it out to a third party and receive income.

Implicit costs, which are part of economic costs, should always be taken into account when making current decisions.

Explicit costs- These are opportunity costs that take the form of cash payments to suppliers of factors of production and intermediate goods.

Explicit costs include:

• workers' wages
• cash costs for the purchase and rental of machines, equipment, buildings, structures
• payment of transportation costs
• communal payments
• payment to suppliers of material resources
• payment for services of banks, insurance companies

Implicit costs- these are the opportunity costs of using resources owned by the company itself, i.e. unpaid expenses.

Implicit costs can be represented as:

• cash payments that a company could receive if it uses its assets more profitably
• for the owner of capital, implicit costs are the profit that he could have received by investing his capital not in this, but in some other business (enterprise)

Returnable and sunk costs

Sunk costs are considered in a broad and narrow sense.

In a broad sense, sunk costs include those expenses that a company cannot return even if it ceases its activities (for example, costs of registering a company and obtaining a license, preparing an advertising sign or company name on the wall of a building, making seals, etc. .). Sunk costs are like a company's payment for entering or leaving the market.

In the narrow sense of the word sunk costs are the costs of those types of resources that have no alternative use. For example, the costs of specialized equipment manufactured to order from the company. Since the equipment has no alternative use, its opportunity cost is zero.

Sunk costs are not included in opportunity costs and do not influence the firm's current decisions.

Fixed costs

In the short run, some resources remain unchanged, while others change to increase or decrease total output.

In accordance with this, short-term economic costs are divided into fixed and variable costs. In the long run, this division becomes meaningless, since all costs can change (that is, they are variable).

Fixed costs- These are costs that do not depend in the short term on how much the firm produces. They represent the costs of its constant factors of production.

Fixed costs include:

• payment of interest on bank loans;
• depreciation deductions;
• payment of interest on bonds;
• salary of management personnel;
• rent;
• insurance payments;

Variable costs

Variable costs- These are costs that depend on the volume of production of the company. They represent the costs of the firm's variable factors of production.

Variable costs include:

• fare
• electricity costs
• raw materials costs

From the graph we see that the wavy line depicting variable costs rises with increasing production volume.

This means that as production increases, variable costs increase:

General (gross) costs

General (gross) costs- these are all the costs at a given time necessary for a particular product.

Total costs (total cost) represent the firm's total expenses for paying for all factors of production.

Total costs depend on the volume of output and are determined by:

• quantity;
• market price of the resources used.

The relationship between the volume of output and the volume of total costs can be represented as a cost function:

which is the inverse function of the production function.

Classification of total costs

Total costs are divided into:

total fixed costs(!!TFC??, total fixed cost) - the company’s total costs for all fixed factors of production.

total variable costs(, total variabl cost) - the company’s total expenses on variable factors of production.

Thus,

At zero output (when the firm is just starting production or has already ceased operations), TVC = 0, and, therefore, total costs coincide with total fixed costs.

Graphically, the relationship between total, fixed and variable costs can be depicted, similar to how it is shown in the figure.

Graphical representation of costs

The U-shape of the short-term ATC, AVC and MC curves is an economic pattern and reflects law of diminishing returns, according to which the additional use of a variable resource with a constant amount of a constant resource leads, starting from a certain point in time, to a reduction in marginal returns, or marginal product.

As has already been proven above, marginal product and marginal costs are inversely related, and, therefore, this law of decreasing marginal product can be interpreted as a law of increasing marginal cost. In other words, this means that starting at some point in time, additional use of a variable resource leads to an increase in marginal and average variable costs, as shown in Fig. 2.3.

Rice. 2.3. Average and marginal costs of production

The marginal cost curve MC always intersects the lines of average (ATC) and average variable costs (AVC) at their minimum points, just as average product curve AP always intersects the marginal product curve MP at its maximum point. Let's prove it.

Average total costs ATC=TC/Q.

Marginal cost MS=dTC/dQ.

Let us take the derivative of average total costs with respect to Q and obtain

Thus:

• if MC > ATC, then (ATS)" > 0, and the average total cost curve of ATC increases;
• if MS< AТС, то (АТС)" <0 , и кривая АТС убывает;
• if MC = ATC, then (ATS)"=0, i.e. the function is at the extremum point, in this case at the minimum point.

In a similar way, you can prove the relationship between average variable costs (AVC) and marginal costs (MC) on the graph.

Costs and price: four models of firm development

Analysis of the profitability of individual enterprises in the short term allows us to distinguish four models of development of an individual company, depending on the ratio of the market price and its average costs:

1. If the firm’s average total costs are equal to the market price, i.e.

ATS=P,

then the firm earns “normal” profits, or zero economic profit.

Graphically this situation is depicted in Fig. 2.4.

Rice. 2.4. Normal profit

2. If favorable market conditions and high demand increase the market price so that

ATC< P

then the company receives positive economic profit, as shown in Figure 2.5.

Rice. 2.5. Positive economic profit

3. If the market price corresponds to the minimum average variable cost of the firm,

then the enterprise is located at the limit of expediency continuation of production. Graphically, a similar situation is shown in Figure 2.6.

Rice. 2.6. A firm at its limit

4. And finally, if market conditions are such that the price does not cover even the minimum level of average variable costs,

AVC>P,

It is advisable for the company to close its production, since in this case the losses will be less than if the production activity continues (more on this in the topic “Perfect competition”).