Cost
Analysis:
By "Cost of Production" is
meant the total sum of money required for the production of a
specific quantity of output. In the word of Gulhrie and Wallace.
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We have discussed the important
types of cost which a firm has to face. The cost of production
from the point of view of an individual firm is split up into
the following parts.
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Short run
is a period of time over which at least one factor must remain
fixed. For most of the firms, the fixed resource or factors
which cannot be increased to meet the rising demand of the good
is capital i.e., plant and machinery.
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The entrepreneurs are no doubt
interested in the total costs but they are equally concerned in
knowing the cost per unit of the product.
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In the
short run, the shape of the average total cost curve (ATC)
is U-shaped. The, short run average cost curve
falls in the beginning, reaches a minimum and then begins to
rise.
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Marginal Cost is an increase
in total cost that results from a one unit increase in output.
It is defined as "the cost that results from a one unit change
in the production rate".
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Before we explain, the relation
of average variable cost (AVC) and average total cost (ATC)
to marginal cost (MC), it seems necessary that the various types
of costs and their relationship should be shown in the form of a
table.
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