Fixed costs (TFC), variable costs (TVC) and their schedules. Determining total costs

In the short run, some of the resources remain unchanged, and some 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 (FC)- 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 charges;
• - payment of interest on bonds;
• - salary of management personnel;
• - rent;
• - insurance payments;

Variable costs(VC) These are costs that depend on the firm's output. They represent the costs of the firm's variable factors of production.

Variable costs include:

• - wages;
• - transportation costs;
• - electricity costs;
• - costs of raw materials and supplies.

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:

initially they grow in proportion to the change in production volume (until point A is reached)

then savings in variable costs are achieved in mass production, and their growth rate decreases (until point B is reached)

the third period, reflecting changes in variable costs (movement to the right from point B), is characterized by an increase in variable costs due to a violation of the optimal size of the enterprise. This is possible with an increase in transportation costs due to the increased volumes of imported raw materials and the volumes of finished products that need to be sent to the warehouse.

Total (gross) costs (TC)- these are all the costs at a given time necessary for the production of a particular product. TC = FC + VC

Formation of the long-term average cost curve, its graph

Economies of scale are a long-term phenomenon when all resources are variable. This phenomenon should not be confused with the well-known law of diminishing returns. The latter is a phenomenon of an exclusively short-term period, when constant and variable resources interact.

At constant prices for resources, the effect of scale determines the dynamics of costs in the long term. After all, it is he who shows whether increasing production capacity leads to decreasing or increasing returns.

It is convenient to analyze the efficiency of resource use in a given period using the LATC long-term average cost function. What is this function? Let's assume that the Moscow government is deciding on the expansion of the city-owned AZLK plant. With the available production capacity, cost minimization is achieved with a production volume of 100 thousand cars per year. This state of affairs is reflected by the short-term average cost curve ATC1, corresponding to a given scale of production (Fig. 6.15). Let the introduction of new models, which are planned to be released jointly with Renault, increase the demand for cars. The local design institute proposed two plant expansion projects, corresponding to two possible production scales. Curves ATC2 and ATC3 are the short-run average cost curves for this large scale of production. When deciding on the option to expand production, the plant management, in addition to taking into account the financial possibilities of investment, will take into account two main factors: the magnitude of demand and the value of the costs with which the required volume of production can be produced. It is necessary to select a production scale that will ensure that demand is met at minimum cost per unit of production.

ILong-run average cost curve for a specific project

Here, the points of intersection of adjacent short-term average cost curves (points A and B in Fig. 6.15) are of fundamental importance. By comparing the production volumes corresponding to these points and the magnitude of demand, the need to increase the scale of production is determined. In our example, if the demand does not exceed 120 thousand cars per year, it is advisable to carry out production at the scale described by the ATC1 curve, i.e. at existing capacities. In this case, the achievable unit costs are minimal. If demand increases to 280 thousand cars per year, then the most suitable plant would be with the production scale described by the ATC2 curve. This means that it is advisable to carry out the first investment project. If demand exceeds 280 thousand cars per year, it will be necessary to implement a second investment project, that is, expand the scale of production to the size described by the ATC3 curve.

In the long term, there will be enough time to implement any possible investment project. Therefore, in our example, the long-term average cost curve will consist of successive sections of short-term average cost curves up to the points of their intersection with the next such curve (thick wavy line in Fig. 6.15).

Thus, each point on the LATC long-run cost curve determines the minimum achievable unit cost for a given production volume, taking into account the possibility of changes in production scale.

In the limiting case, when a plant of the appropriate scale is built for any amount of demand, i.e. there are infinitely many short-term average cost curves, the long-term average cost curve changes from a wave-like one to a smooth line that goes around all the short-term average cost curves. Each point on the LATC curve is a point of tangency with a specific ATCn curve (Figure 6.16).

Instructions

Identify common costs(TCi) for each value of Q according to the formula: TCi = Qi *VC +PC. However, you need to understand that before calculating marginal costs, you must have variable (VC) and fixed (PC) costs.

Determine the change in total costs resulting from an increase or decrease in production, i.e. determine the change in TC - ∆ TC. To do this, use the formula: ∆ TC = TC2- TC1, where:
TC1 = VC*Q1 + PC;
TC2 = VC*Q2 + PC;
Q1 - production volume before change,
Q2 – production volumes after the change,
VC – variable costs per unit of production,
PC – fixed costs of the period required for a given volume of production,
TC1 – total costs before changes in production volume,
TC2 – total costs after changes in production volume.

Divide the increment in total costs (∆ TC) by the increment in production volume (∆ Q) - you will get the marginal cost of producing an additional unit of output.

Draw a graph of changes in marginal costs for different productions - this will give a visual picture of the mathematical structure, which will clearly demonstrate the process of changes in production costs. Pay attention to the MS form on yours! The marginal cost curve MC clearly shows that with all other factors remaining constant, as production increases, marginal costs increase. It follows from this that it is impossible to endlessly increase production volumes without changing anything in production itself. This leads to an unreasonable increase and decrease in the expected one.

Useful advice

Increase production by using intensive methods to increase efficiency: by modernizing production, replacing equipment, changing technologies, and training personnel. Constantly improve your productivity levels.

Recognized as permanent costs, the value and quantity of which does not change over a minimum period of time and regardless of the volume of products sold. Such costs include salaries of management personnel, payment of rent, maintenance of production workshops, payments to creditors, transport costs.

You will need

• calculator
• notepad and pen

Instructions

Calculate permanent costs enterprises for a given period of time. Let the retailer handle the sale of goods. Then her permanent costs will be equal
FC = Y + A + K + T, where
U – salary of management personnel (112 rubles),
A – payments for renting premises (50 thousand rubles),
K – payments on accounts payable, for example, for the purchase of the first batch of goods (158 thousand rubles),
T – transport related to the delivery of goods (190 thousand rubles).
Then FC = 112 + 50 + 158 + 190 = 510 thousand rubles. This must be paid by the trade organization to the relevant authorities or suppliers. Even if the trading organization was unable to sell the goods during the period under consideration, it must pay 510 thousand rubles.

Divide the resulting amount by the quantity of goods sold. For example, a trading organization was able to sell 55 thousand units of goods during the specified period. Then its average permanent costs can be done as follows:
FC = 510 / 55 = 9.3 rubles per unit of goods sold. Constant costs do not depend . With zero implementation permanent costs continue to be equated with mandatory payments. The greater the volume of products sold, the lower the fixed costs. Accordingly, with a decrease in the volume of goods sold permanent costs per unit of production will increase, which may naturally lead to an increase in prices for these products. This is explained by the fact that a larger quantity of goods sold distributes a common constant value among themselves. That's why permanent costs First of all, products are included to cover mandatory expenses.

Sources:

Variables are recognized costs, which directly depend on the volume of calculated production. Variables costs will depend on the cost of raw materials, materials, the cost of electrical energy, and the amount of wages paid.

You will need

• calculator
• notepad and pen
• a complete list of enterprise costs with the indicated amount of costs

Instructions

Add it all up costs enterprises that directly depend on the volume of products produced. For example, the variables of a trading company selling consumer goods include:
Pp – volume of products purchased from suppliers. Expressed in rubles. Let a trade organization purchase goods from suppliers in the amount of 158 thousand rubles.
Uh – to electric. Let a trade organization pay 3,500 rubles for .
Z – the salary of sellers, which depends on the quantity of goods they sell. Let the average wage fund in a trade organization be 160 thousand rubles. Thus, the variables costs trade organization will be equal to:
VC = Pp + Ee + Z = 158+3.5+160 = 321.5 thousand rubles.

Divide the resulting amount of variable costs by the volume of products sold. This indicator can be found by a trade organization. The volume of goods sold in the above example will be expressed in quantitative terms, that is, by piece. Suppose a trading organization was able to sell 10,500 units of goods. Then the variables costs taking into account the quantity of goods sold are equal to:
VC = 321.5 / 10.5 = 30 rubles per unit of goods sold. Thus, variable costs are made not only by adding the organization’s costs for the purchase and goods, but also by dividing the resulting amount by the unit of goods. Variables costs with an increase in the quantity of goods sold, they decrease, which may indicate efficiency. Variables depending on the type of company activity costs and their types may change - added to those indicated above in the example (costs of raw materials, water, one-time transportation of products and other expenses of the organization).

Sources:

• "Economic Theory", E.F. Borisov, 1999

Costs production - these are the costs associated with the circulation of manufactured goods and production. In statistical and financial reporting, costs are reflected as cost. Costs include: labor costs, interest on loans, material costs, costs associated with promoting the product on the market and selling it.

Instructions

Costs There are variables, constants and . Fixed costs are those costs that in the short term do not depend on how much the company produces. These are the costs of the enterprise's constant factors of production. Total costs are everything that the manufacturer spends for production purposes. Variable costs are those costs that always depend on the volume of a firm's output. These are the costs of variable factors in a firm's production.

Fixed costs are the opportunity cost of the portion of financial capital that was invested in the equipment of the enterprise. The value of this cost is equal to the amount for which the owners of the company could invest this equipment and the proceeds received in the most attractive investment business (for example, in an account or in the stock exchange). These include all costs of raw materials, fuel, transportation services, etc. The largest portion of variable costs tends to be materials and labor. Since, as output grows, the costs of variable factors increase, so do variable costs, respectively, with the growth of output.

Average costs are divided into average variable, average fixed and average total. To find the average, you need to divide fixed costs by the volume of output. Accordingly, in order to calculate average variable costs, it is necessary to divide variable costs by the volume of output. To find average total costs, you need to divide total costs (the sum of variable and constant) by the volume of output.

Average costs are used to decide whether a given product needs to be produced at all. If price, which represents average revenue per unit of output produced, is less than average variable cost, then the company will reduce its losses if it suspends operations in the short run. If the price is below average total cost, then the firm is making negative profits and must consider permanent closure. Moreover, if average costs are lower than the market price, the enterprise can operate quite profitably within the limits of its production volume.

Economic and accounting costs.

In economics costs most often referred to as losses that a manufacturer (entrepreneur, firm) is forced to bear in connection with the implementation of economic activities. This could be: the cost of money and time for organizing production and acquiring resources, loss of income or product from missed opportunities; costs of collecting information, concluding contracts, promoting goods to the market, preserving goods, etc. When choosing among different resources and technologies, a rational manufacturer strives for minimal costs, so he chooses the most productive and cheapest resources.

The production costs of any product can be represented as a set of physical or cost units of resources expended in its production. If we express the value of all these resources in monetary units, we obtain the cost expression of the costs of producing a given product. This approach will not be wrong, but it seems to leave unanswered the question of how the value of these resources will be determined for the subject, which will determine this or that line of his behavior. The economist's task is to choose the best option for using resources.

Costs in the economy are directly related to the denial of the possibility of producing alternative goods and services. This means that the cost of any resource is equal to its cost, or value, given the best possible use of it.

It is necessary to distinguish between external and internal costs.

External or explicit costs– these are cash expenses for paying for resources owned by other companies (payment for raw materials, fuel, wages, etc.). These costs, as a rule, are taken into account by an accountant, reflected in the financial statements and are therefore called accounting.

At the same time, the company can use its own resources. In this case, costs are also inevitable.

Internal costs – These are the costs of using the firm's own resources that do not take the form of cash payments.

These costs are equal to the cash payments that the firm could receive for its own resources if it chose the best option for using them.

Economists consider all external and internal payments as costs, including the latter and normal profit.

Normal, or zero, profit - this is the minimum fee necessary to maintain the entrepreneur's interest in the chosen activity. This is the minimum payment for the risk of working in a given area of ​​the economy, and in each industry it is assessed differently. It is called normal for its similarity to other incomes, reflecting the contribution of a resource to production. Zero - because in essence it is not a profit, representing a part of the total production costs.

Example. You are the owner of a small store. You purchased goods worth 100 million rubles. If accounting costs for the month amounted to 500 thousand rubles, then to them you must add lost rent (let’s say 200 thousand rubles), lost interest (let’s say you could put 100 million rubles in the bank at 10% per annum, and receive approximately 900 thousand rubles) and a minimum risk fee (let’s say it is equal to 600 thousand rubles). Then the economic costs will be

500 + 200 + 900 + 600 = 2200 thousand rubles.

Production costs in the short term, their dynamics.

The production costs that a firm incurs in producing products depend on the possibility of changing the amount of all employed resources. Some types of costs can be changed quite quickly (labor, fuel, etc.), others require some time for this.

Based on this, short-term and long-term periods are distinguished.

Short term – This is the period of time during which a firm can change production volume only due to variable costs, while production capacity remains unchanged. For example, hire additional workers, purchase more raw materials, use equipment more intensively, etc. It follows that in the short run costs can be either constant or variable.

Fixed costs (F.C.) - These are costs whose value does not depend on the volume of production.

Fixed costs are associated with the very existence of the firm and must be paid even if the firm does not produce anything. These include: rental payments, deductions for depreciation of buildings and equipment, insurance premiums, interest on loans, and labor costs for management personnel.

Variable costs (V.C.) – these are costs, the value of which changes depending on changes in production volume.

With zero output they are absent. These include: costs of raw materials, fuel, energy, most labor resources, transport services, etc. The firm can control these costs by changing production volume.

Total production costs (TC) – This is the sum of fixed and variable costs for the entire volume of output.

TC = total fixed costs (TFC) + total variable costs (TVC).

There are also average and marginal costs.

Average costs – This is the cost per unit of production. Average short-term costs are divided into average fixed, average variable and average total.

Average fixed costs (A.F.C.) are calculated by dividing total fixed costs by the number of products produced.

Average variable costs (AVC) are calculated by dividing total variable costs by the number of products produced.

Average Total Cost (ATC) are calculated using the formula

ATS = TS / Q or ATS = AFC + AVC

To understand the behavior of a firm, the category of marginal costs is very important.

Marginal cost (MC)– These are additional costs associated with producing one more unit of output. They can be calculated using the formula:

MS =∆ TC / ∆ Qwhere ∆Q= 1

In other words, marginal cost is the partial derivative of the total cost function.

Marginal costs make it possible for a firm to determine whether it is advisable to increase production of goods. To do this, compare marginal costs with marginal revenue. If marginal costs are less than the marginal revenue received from sales of this unit of product, then production can be expanded.

As production volumes change, costs change. Graphical representation of cost curves reveals some important patterns.

Fixed costs, given their independence from production volumes, do not change.

Variable costs are zero when no output is produced; they increase as output increases. Moreover, at first the growth rate of variable costs is high, then it slows down, but upon reaching a certain level of production, it increases again. This nature of the dynamics of variable costs is explained by the laws of increasing and diminishing returns.

Gross costs are equal to fixed costs when output is zero, and as production increases, the gross cost curve follows the shape of the variable cost curve.

Average fixed costs will continuously decrease as production volumes increase. This is because fixed costs are spread over more units of production.

The average variable cost curve is U-shaped.

The average total cost curve also has this shape, which is explained by the relationship between the dynamics of AVC and AFC.

The dynamics of marginal costs are also determined by the law of increasing and diminishing returns.

The MC curve intersects the AVC and AC curves at the points of the minimum value of each of them. This dependence of the limit and average values ​​has a mathematical basis.

Certain costs, which do not depend at all on changes in production volume. They can only depend on time. At the same time, variables and permanent costs in sum determine the size of the total costs.

You can also have fixed costs if you derive this indicator from the formula that determines: Revenue = Fixed costs - Variable (total) costs. That is, based on this formula, we get: Fixed costs = Revenue + Variable (total) costs.

Sources:

• Average variable costs

Costs play a big role in business development, because they directly affect profits. In modern economics, there are two types: fixed and variable costs. Their optimization allows you to increase the efficiency of the enterprise.

To begin with, it is necessary to define the short-term and long-term periods. This will allow you to better understand the essence of the issue. In the short run, factors of production can be constant or variable. In the long run, they will only be variables. Let's say the building is . In the short term, it will not change in any way: the company will use it to, for example, place machines. However, in the long term, the company can buy a more suitable building.

Fixed costs

Fixed costs are those that do not change in the short run even if production increases or decreases. Let's say the same building. No matter how many goods are produced, the rent will always be the same. You can work even the whole day, the monthly payment will still remain unchanged.

To optimize fixed costs, a comprehensive analysis is required. Depending on the specific unit, solutions may vary significantly. If we are talking about rent for a building, then you can try to reduce the price for accommodation, occupy only part of the building so as not to pay for everything, etc.

Variable costs

It is not difficult to guess that variables are costs that can change depending on the decrease or increase in production volumes in any period. For example, to make one chair you need to spend half a tree. Accordingly, to make 100 chairs, you need to spend 50 trees.

It is much easier to optimize variable costs than fixed ones. Most often, it is simply necessary to reduce the cost of production. This can be achieved, for example, by using cheaper materials, upgrading technology or optimizing the location of workplaces. Let’s say that instead of oak, which costs 10 rubles, we use poplar, which costs 5 rubles. Now, to produce 100 chairs you need to spend not 50 rubles, but 25.

Other indicators

There are also a number of secondary indicators. Total costs are a combination of variable and fixed costs. Let’s say that for one day of renting a building, an entrepreneur pays 100 rubles and produces 200 chairs, the cost of which is 5 rubles. Total costs will be equal to 100+(200*5)=1100 rubles per day.

Beyond that, there are plenty of averages. For example, average fixed costs (how much you need to pay for one unit of production).

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10.11 Types of costs

When we looked at the periods of production of a firm, we said that in the short run the firm can change not all the factors of production used, while in the long run all factors are variable.

It is precisely such differences in the possibility of changing the volume of resources when changing production volumes that forced economists to divide all types of costs into two categories:

1. fixed costs;
2. variable costs.

Fixed costs(FC, fixed cost) are those costs that cannot be changed in the short term, and therefore they remain the same with small changes in the volume of production of goods or services. Fixed costs include, for example, rent for premises, costs associated with maintaining equipment, payments to repay previously received loans, as well as all kinds of administrative and other overhead costs. Let's say it is impossible to build a new oil refining plant within a month. Therefore, if next month an oil company plans to produce 5% more gasoline, then this is only possible on existing production facilities and with existing equipment. In this case, a 5% increase in output will not lead to an increase in the costs of servicing equipment and maintaining production facilities. These costs will remain constant. Only the amounts of wages paid, as well as the costs of materials and electricity (variable costs) will change.

The fixed cost graph is a horizontal line.

Average fixed costs (AFC, average fixed cost) are fixed costs per unit of output.

Variable costs(VC, variable cost) are those costs that can be changed in the short term, and therefore they grow (decrease) with any increase (decrease) in production volumes. This category includes costs for materials, energy, components, and wages.

Variable costs show the following dynamics depending on the volume of production: up to a certain point they increase at a killing pace, then they begin to increase at an increasing pace.

The variable cost schedule looks like this:

Average variable costs (AVC, average variable cost) are variable costs per unit of output.

The standard Average Variable Cost graph looks like a parabola.

The sum of fixed costs and variable costs is total costs (TC, total cost)

TC = VC + FC

Average total costs (AC, average cost) are the total costs per unit of production.

Also, average total costs are equal to the sum of average fixed and average variable costs.

AC = AFC + AVC

AC graph looks like a parabola

Marginal costs occupy a special place in economic analysis. Marginal cost is important because economic decisions typically involve marginal analysis of available alternatives.

Marginal cost (MC, marginal cost) is the increment in total costs when producing an additional unit of output.

Since fixed costs do not affect the increment in total costs, marginal costs are also an increment in variable costs when producing an additional unit of output.

As we have already said, formulas with derivatives in economic problems are used when smooth functions are given, from which it is possible to calculate derivatives. When we are given individual points (discrete case), then we should use formulas with increment ratios.

The marginal cost graph is also a parabola.

Let's plot the marginal cost graph together with the graphs of average variables and average total costs:

The above graph shows that AC always exceeds AVC since AC = AVC + AFC, but the distance between them decreases as Q increases (since AFC is a monotonically decreasing function).

The graph also shows that the MC graph intersects the AVC and AC graphs at their minimum points. To justify why this is so, it is enough to recall the relationship between average and maximum values ​​already familiar to us (from the “Products” section): when the maximum value is below the average, then the average value decreases with increasing volume. When the marginal value is higher than the average value, the average value increases with increasing volume. Thus, when the marginal value crosses the average value from bottom to top, the average value reaches a minimum.

Now let’s try to correlate the graphs of general, average, and maximum values:

These graphs show the following patterns.