3. Average and marginal production costs
For entrepreneurs, it is important to measure average production costs.
Total, or gross average costs -АТС - (average total costs) - gross costs per unit of production:
Similarly calculated average constants (AFC) and average variable (AVC) costs:
AFC = FC / Q; AVC = VC / Q; ATC = AFC + AVC
Figure 23. Curve plots of gross averages, mean variables and averages fixed costs .
Average fixed costs (AFC) decrease as the supply of products grows, since with an increase in production per unit of output, their value will be less and less. The average fixed cost curve is a hyperbole.
Average variable costs, initially rather high, with an increase in production volumes begin to decline and reach their minimum at a certain volume, from which they grow due to the law of diminishing returns. Therefore, the average variable cost curve is a U-shaped line.
Average gross costs depend on average fixed and variable costs. Initially, they, representing the sum of two decreasing functions, also decrease, but starting from a certain volume (greater than the one at which the minimum average variable costs are reached), the decrease in average fixed costs begins to overlap with an increase in average variable costs, that is, the total average costs also begin to increase. Average gross cost curve is a U-shaped line above the average variable cost curve.
To make decisions about the optimal volume, the category is used marginal cost.
MC marginal cost(marginal costs) are the additional costs required to produce an additional unit of output.
Figure 24. Marginal Cost Curve Plot
The marginal cost curve, like the two average cost curves described above, is U-shaped. When reading the graph, you should pay attention to the fact that:
marginal costs are less than average as long as the latter decrease;
marginal costs are higher than average, as soon as the latter begin to increase;
marginal costs are equal to the average for production volumes that provide the minimum of the corresponding average costs.
4. Entrepreneurial capital.
Entrepreneurial capital.
Capital, various interpretations, essences and forms.
Both in everyday life and in economic theory concept
"Capital" is ambiguous.
different methodological approaches
different contexts
Studying capital, K. Marx differentiated such concepts as:
constant capital - means of production; that is, the means and objects of labor;
variable capital - funds used to attract labor;
money is money capital;
goods are commodity capital.
According to Marx, essence of capital is determined by the following main points:
capital is not a thing, but a certain social attitude, the relationship between the owner of the means of production and the hired worker (in a single case) or (in more broad sense) the relationship between capitalists and wage workers;
capital is in constant movement, only then money or
material objects are converted into capital;
capital is self-increasing cost, that is, money that brings in extra money.
Most economists consider capital as an economic resource(production factor), while mean, first of all, its natural form, the so-called physical capital. It means: machine tools, machines, buildings, structures, stocks of materials and raw materials, semi-finished products, etc.
In financial markets under capital understand money capital, that is, money that brings income in the form of interest.
To carry out entrepreneurial activity, it is necessary to make capital investments. So to start a business you need
start-up capital, which is the sum of the initially invested physical and monetary capital and operating costs at the initial stage of production.
Sources starting capital and entrepreneurial capital in the general case can be own and borrowed funds.
Own funds are authorized capital, profit from operating activities, profit from financial transactions, amortization fund, buyers' debts for shipped goods, proceeds from the sale of retired property, etc.
Authorized capital- This is the initial amount of the capital of firms, provided for by the charter or agreement on their foundation.
Borrowed funds- these are loans and borrowings.
Any national economic system includes a set of, on the one hand, isolated, on the other, interconnected firms that carry out individual reproduction.
Individual reproduction is a continuously repeating process of productive connection of economic resources in order to create goods and services and generate income.
The basis of individual reproduction is the circulation of capital.
Circulation of capital- this is a consistent change by capital of its functional forms: monetary, productive and commodity.
The circulation of capital can be described by the following formula:
RS
D-T ............ P ........... T "-D"
Stage 1 Stage 2 Stage 3
Each of the stages of the circuit performs a specific function.
At stage 1, production conditions.
Stage 2 is carried out production goods and services.
Stage 3 occurs realization goods and services and making a profit.
In one cycle, as a rule, not the entire cost of the invested capital is returned. In this regard, the concept of capital turnover is introduced.
Capital turnover is a set of continuously replacing circuits, for which all the advanced capital is returned to the entrepreneur in monetary form.
The turnover of various elements of capital occurs over different time intervals. For this reason, the capital is divided into the main
and negotiable.
Working capital - it is a part of the economic assets of the enterprise, the value of which is transferred to the finished product in one production cycle (circuit). Working capital is
raw materials, materials and costs labor force... The costs of these elements of capital are recouped in one production cycle.
Basic capital is buildings, structures, etc. price
fixed capital is transferred to the finished product in parts, for several capital cycles (fixed capital is consumed only in a certain part in one production cycle).
The concepts of fixed and working capital, given above, reflect the understanding of these categories in domestic economy... They are used in foreign economic theory and practice, but their interpretation is somewhat different from ours. This is due to the peculiarities accounting statements adopted in various countries.
Thus, in the book "Economics of the Firm" by Danish authors Vorst and Reventlow it is indicated: "Fixed capital - these are assets that are intended to be used by an enterprise over an extended period of time. .. Working capital call those assets that, during normal economic activity, change their forms in a relatively short term(less than 1 year)...
main capital;
intangible assets;
money;
financial assets;
working capital;
commodity stocks;
receivables;
securities and other short-term financial investments; cash" 22 .
The process of transferring the value of fixed capital as it depreciates during its service life onto a finished product is called depreciation.
Depreciation is associated with the depreciation of fixed assets. Distinguish between physical and moral deterioration.
Physical deterioration is a process as a result of which fixed capital becomes physically unsuitable for its further use. Physical wear and tear means destruction, breakage, etc. phenomena. It occurs both as a result of the productive use of fixed capital and during its downtime.
Moral wear - it is the process of depreciation of fixed assets due to obsolescence. Obsolescence can occur for two main reasons:
due to the creation of similar, but cheaper means of labor;
due to the release of more productive means of labor at the same price.
The depreciation cost of fixed assets recoverable in installments is accumulated in depreciation fund. Depreciation deductions are intended for the repair or replacement of worn out labor equipment.
In the conditions of modern high-tech production, it is extremely important to neutralize the factor of obsolescence. In this regard, economically developed countries apply the so-called accelerated depreciation policy.
Before introducing the concept of accelerated depreciation, we point out that depreciation rate - this attitude annual amount depreciation to the cost of fixed capital.
Example: To main. = 1 million rubles, A = 200 thousand rubles.
A '= ------ ´100 = 20%
Accelerated depreciation - this is an increase in depreciation rates and an accelerated transfer of the cost of labor instruments to produced goods and services in order to quickly renew the production apparatus and neutralize the factor of obsolescence.
Accelerated depreciation is one of the most important means of state regulation of the economy. Read more about accelerated depreciation in the textbook "Economics", ed. Bulatova A.S .. M .: VEK, 1996.
In conclusion, we will consider the most important indicators of the use of fixed and working capital.
The generalizing indicator of the use of fixed capital is the return on assets (RO):
FD = ------ ,where
NS - cost of production;
To main. - the cost of fixed assets (fixed capital).
A growing capital productivity is desirable both for an individual entrepreneurial firm and for the national economy as a whole.
The use of working capital reflects the indicator of material intensity (ME):
ME = -------, where
To vol. - the cost of circulating production assets (working capital).
Desirable both for an individual entrepreneurial firm and for the national economy as a whole is decreasing material consumption.
In addition to the established legal system barriers to entry, there are also economic barriers. In some industries, it can be “expensive” to start production, for example, in the aviation industry. The high costs of developing and testing new aircraft do not allow potential competitors enter the industry. Only a small number of companies can provide the ten to fifteen billion dollars needed to build a new generation of aircraft.
In addition, it may be unattainable for a potential eltrant to have the “intangible” investment required to operate in the industry.
Current technology in some industries is such that efficient low-cost production can only be achieved if the producers are extremely large, both in absolute terms and relative to the market. Where economies of scale are significant, the firm's average cost curve will decline over a large segment toward the horizontal axis of output. With a given market demand, achieving low production costs and, therefore, low prices a unit of output for consumers depends on the existence of a small number of firms, or at the very least, only one firm. Automotive, aluminum, steel are a few of the many heavy industries that reflect such conditions. If three firms are now taking full advantage of economies of scale, and each controls approximately one third of the market, it is easy to see why new competitors are extremely difficult to enter the industry. On the other hand, new firms entering the market as small producers will have no chance of survival and expansion. Why? Because, as small businesses, they will not be able to capture the cost savings that the substantial Big Three gain, and therefore will not be able to generate the profits they need to survive and grow. New competitors in the mainstream steel and automotive industries will not emerge from the successful operation and expansion of small out-of-the-box manufacturers. They simply won't be effective enough to survive. Another option is to enter the industry as a major manufacturer. In practice, this is extremely difficult. It will be very difficult for a new and untested venture to obtain the cash capital needed to purchase equipment comparable to that accumulated by any of the Big Three in the automotive industry. Financial barriers to large enterprises.
Carrying out any activities of companies is impossible without investing costs in the process of making a profit.
However, there are costs different types... Some operations during the operation of the enterprise require constant investment.
But there are also costs that are not fixed costs, i.e. refer to variables. How do they affect the production and sale of finished products?
The concept of fixed and variable costs and their differences
The main goal of the enterprise is the manufacture and sale of manufactured products for profit.
To manufacture products or provide services, you must first purchase materials, tools, machine tools, hire people, etc. This requires a different investment Money, which are called "costs" in economics.
Since monetary investments in production processes are of various types, they are classified depending on the purpose of using the costs.
In economics costs are shared by such properties:
- Explicit - this is a type of direct cash costs for making payments, commission payments to trading companies, payment banking services, transportation costs, etc .;
- Implicit, which includes the expense of using the resources of the organization's owners that are not contractually required to explicitly pay.
- Permanent means an investment of funds to ensure stable costs in the production process.
- Variables are special costs that can be easily adjusted without sacrificing activity depending on changes in production volumes.
- Irrevocable - a special option for spending movable assets invested in production without return. These types of expenses are at the beginning of a new product launch or reorientation of an enterprise. The funds spent once can no longer be used to invest in other processes of activity.
- Average is the estimated cost that determines the amount of capital investment per unit of output. Based on this value, the piece price of the product is formed.
- Limiting are maximum amount costs, which cannot be increased due to the inefficiency of further investments in production.
- Inquiries - the cost of delivering products to the buyer.
From this list of costs, constant and variable types are important. Let's take a closer look at what they consist of.
Views
What should be attributed to fixed and variable costs? There are some principles by which they differ from each other.
In economics characterize them as follows:
- fixed costs include costs that need to be invested in the manufacture of products within a single production cycle. For each enterprise, they are individual, therefore, they are taken into account by the organization independently on the basis of an analysis of production processes. It should be noted that these costs will be characteristic and the same in each of the cycles during the manufacture of goods from the beginning to the sale of products.
- variable costs that can vary in each production cycle and are almost never repeated.
Fixed and variable costs add up the total costs, summed up after the end of one production cycle.
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What belongs to them
The main characteristic of fixed costs is that they do not actually change over a period of time.
V in this case, for an enterprise that has decided to increase or decrease the volume of production, such costs will remain unchanged.
Among them can be attributed such cash costs:
- communal payments;
- building maintenance costs;
- rent;
- employees' earnings, etc.
In this situation, you always need to understand that the constant size of the total costs invested in a certain period of time for the release of products in one cycle will only be for the entire number of products released. When such costs are calculated by the piece, their value will decrease in direct proportion to the increase in production volumes. For all types of industries, this pattern is an established fact. 
Variable costs depend on changes in the quantity or volume of products produced.
To them include such expenses:
- energy costs;
- raw materials;
- piecework wages.
These monetary investments are directly related to production volumes, therefore, they change depending on the planned parameters of production.
Examples of
In each production cycle, there are cost amounts that do not change under any circumstances. But there are also costs that depend on production factors. Depending on such characteristics, economic costs for a certain, short period of time are called constant or variable.
For long-term planning, such characteristics are not relevant, since sooner or later all costs tend to change.
Fixed costs - ϶ᴛᴏ costs that do not depend in the short run on how much the firm produces products. It is worth noting that they represent the costs of her constant factors production, independent of the number of released goods.
Depending on the type of production at fixed costs includes such expendable funds:
Any costs that are not related to the release of products and are the same in the short run of the production cycle can be included in fixed costs. According to this definition, it can be stated that variable costs are those costs that are invested directly in the production of products. Their value always depends on the volume of manufactured products or services.
Direct investment of assets depends on the planned quantity of production.
Based on this characteristic, to variable costs include the following costs:
- raw materials;
- payment of remuneration for the work of workers engaged in the manufacture of products;
- delivery of raw materials and products;
- energy resources;
- tools and materials;
- other direct costs of manufacturing products or providing services.
Graphic image variable costs displays a wavy line that smoothly rushes up. At the same time, with an increase in production volumes, it first rises in proportion to an increase in the number of manufactured products, until it reaches point "A".
Then there is a cost saving in mass production, in connection with which the line rushes upward at no less speed (section "A-B"). After violation of the optimal expenditure of funds in variable costs after point "B", the line again takes a more vertical position.
Irrational use of funds for transport needs or excessive accumulation of raw materials, volumes of finished products during a decrease in consumer demand can affect the growth of variable costs.
Calculation procedure
Let's give an example of calculating fixed and variable costs. The production is engaged in the manufacture of shoes. The annual production volume is 2000 pairs of boots.
The enterprise has the following types expenditures per calendar year:
- Payment for the rental of premises in the amount of 25,000 rubles.
- Interest payment 11,000 rubles. for a loan.
Production costs goods:
- for wages for the release of 1 pair of 20 rubles.
- for raw materials and materials 12 rubles.
It is necessary to determine the size of the total, fixed and variable costs, as well as how much money is spent on making 1 pair of shoes.
As you can see from the example, only funds for rent and interest on a loan can be added to fixed or fixed costs.
Due to the fact that fixed costs do not change their value with a change in production volumes, then they will amount to the following amount:
25,000 + 11,000 = 36,000 rubles.
The cost of making 1 pair of shoes is a variable cost. For 1 pair of shoes total costs make up the following value:
20 + 12 = 32 rubles.
For the year with the release of 2000 pairs variable costs in total are:
32x2000 = 64,000 rubles.
Total costs calculated as the sum of fixed and variable costs:
36,000 + 64,000 = 100,000 rubles.
We define average total cost which the company spends on sewing one pair of boots:
100000/2000 = 50 rubles.
Cost analysis and planning
Each enterprise must calculate, analyze and plan the costs of production activities.
Analyzing the amount of costs, options for saving funds invested in production are considered for the purpose of their rational use. This allows the enterprise to reduce the manufactured products and, accordingly, to install more cheap price on finished products... Such actions, in turn, allow the company to successfully compete in the market and ensure constant growth.
Any enterprise should strive to save production costs and optimize all processes. The success of the development of the enterprise depends on this. Due to the reduction of costs, the company rises significantly, which makes it possible to successfully invest money in the development of production.
Costs are planned taking into account the calculations of previous periods. Depending on the volume of products, it is planned to increase or decrease the variable costs of manufacturing products.
Display in the balance sheet
In the financial statements, all information about the costs of the enterprise is entered into (form No. 2).
Preliminary calculations during the preparation of indicators for entering into can be divided into direct and indirect costs. If these values are shown separately, then one can admit such reasoning that indirect costs will be indicators of fixed costs, and direct costs are, respectively, variable.
It is worth considering that there is no cost data in the balance sheet, since it only reflects assets and liabilities, and not expenses and income.
For information on what fixed and variable costs are and what they relate to, see the following video material:
2.3.1. Production costs in a market economy.
Production costs - it is the cash cost of purchasing the applied factors of production. Most cost effective method production is considered to be such that minimizes production costs. Production costs are measured in terms of value based on the costs incurred.
Production costs - costs that are directly related to the production of goods.
Treatment costs - costs associated with the sale of manufactured products.
The economic essence of costs is based on the problem of limited resources and alternative use, i.e. the use of resources in this production excludes the possibility of using it for other purposes.
The task of economists is to choose the most optimal option for using production factors and minimize costs.
Internal (implicit) costs - These are monetary incomes donated by the firm independently using its own resources, i.e. these are the incomes that could be received by the company for independently used resources at the best of possible ways their application. The opportunity cost of missed opportunities is the amount of money needed to divert a particular resource from the production of good B and use it to produce good A.
Thus, the monetary costs that the firm incurred in favor of suppliers (labor, services, fuel, raw materials) is called external (explicit) costs.
Dividing costs into explicit and implicit there are two approaches to understanding the nature of costs.
1. Accounting approach: production costs should include all real, actual costs in cash (wages, rent, opportunity costs, raw materials, fuel, depreciation, social deductions).
2. An economic approach: production costs should include not only the actual costs in cash, but also unpaid costs; associated with a missed opportunity to make the best use of these resources.
Short term(SR) - the length of time during which some factors of production are constant, while others are variable.
Constant factors - overall dimensions buildings, structures, the number of machines and equipment, the number of firms that work in the industry. Therefore the opportunity free access firms in the industry in the short run is limited. Variables are raw materials, number of workers.
Long term(LR) - the length of time during which all factors of production are variable. Those. during this period, you can change the size of buildings, equipment, the number of firms. During this period, the company can change all production parameters.
Cost classification
Fixed costs (FC) - costs, the value of which in the short term does not change with an increase or decrease in the volume of production, i.e. they do not depend on the volume of production.
Example: building rent, equipment maintenance, administration salary.
С - the sum of costs.
The fixed cost graph is a straight line parallel to the OX axis.
Average fixed costs (A F C) – fixed costs that fall on a unit of output and is determined by the formula: AFC = FC/ Q
As Q increases, they decrease. This is called overhead allocation. They serve as an incentive for the firm to increase production.
The average fixed cost graph is a diminishing curve. with an increase in the volume of production, the total revenue grows, then the average fixed costs represent an ever smaller amount that falls on a unit of products.
Variable costs (VC) - costs, the value of which changes depending on the increase or decrease in the volume of production, i.e. they depend on the volume of production.
Example: costs of raw materials, electricity, auxiliary materials, wages (workers). Most of the costs are associated with the use of capital.
The graph is a curve proportional to the volume of production, which has an increasing character. But her character can change. Initial period variable costs grow at a higher rate than the output. As the optimum production size (Q 1) is reached, relative VC savings occur.
Average variable costs (AVC) – the volume of variable costs per unit of output. They are determined by following formula: by dividing VC by the output: AVC = VC / Q. At first the curve falls, then it is horizontal and rises sharply.
A graph is a curve that does not start at the origin. The general character of the curve is ascending. The technologically optimal release size is achieved when AVCs become minimal (i.e., Q - 1).
Total costs (TC or C) - a set of fixed and variable costs of the firm, in connection with the production of products in the short run. They are determined by the formula: TC = FC + VC
Another formula (function of the volume of production): TC = f (Q).
Depreciation and amortization
Wear- this is a gradual loss of their value by capital resources.
Physical deterioration- loss of consumer qualities by means of labor, i.e. technical and production properties.
The decrease in the value of capital goods may not be associated with the loss of their consumer qualities, then they talk about obsolescence. It is due to an increase in the efficiency of the production of capital goods, i.e. the emergence of similar, but cheaper new means of labor that perform similar functions, but more perfect.
Obsolescence is a consequence of scientific and technological progress, but for the company this results in an increase in costs. Obsolescence refers to the change in fixed costs. Physical wear and tear - to variable costs. Capital goods last more than one year. Their value is transferred to finished goods gradually as they wear out - this is called depreciation. Part of the proceeds for amortization is generated in the amortization fund.
Depreciation deductions:
Reflect an estimate of the value of the depreciation of capital resources, i.e. are one of the cost items;
Serves as a source of reproduction of capital goods.
The state legislates depreciation rates, i.e. the percentage of the value of capital goods, by which they are considered to be worn out in a year. It shows how many years the cost of fixed assets should be reimbursed.
Average total costs (ATC) - the sum of the total costs per unit of production:
ATC = TC / Q = (FC + VC) / Q = (FC / Q) + (VC / Q)
The curve is V-shaped. The volume of production corresponding to the minimum average total cost is called the point of technological optimism.
Marginal cost (MC) - an increase in total costs caused by an increase in production for the next unit of production.
Determined by the following formula: MC = ∆TC / ∆Q.
It can be seen that fixed costs do not affect the value of the MC. And MC depends on the increment in VC associated with an increase or decrease in production (Q).
Marginal cost measures how much it will cost a firm to increase its output per unit. They decisively influence the choice of the volume of production by the firm, since it is precisely the metric that the firm can influence.
The graph is similar to AVC. The MC curve intersects the ATC curve at a point corresponding to minimum value total costs.
In the short term, the costs of the firm are fixed and variable. This follows from the fact that the production capacity of the company remains unchanged and the dynamics of indicators is determined by the growth of equipment utilization.
Based on this graph, you can build new schedule... Which allows you to visually represent the capabilities of the company, maximize profits and view the boundaries of the existence of the company in general.
For a firm's decision, the most important characteristic is the average, the average fixed costs fall as the volume of production increases.
Therefore, we consider the dependence of variable costs on the production growth function.
At the first stage, the average variable costs decrease and then begin to grow under the influence of economies of scale. In this period, it is necessary to determine the production breakeven point (TB).
TB is the level of the physical volume of sales over the estimated period of time, at which the proceeds from the sale of products coincide with the production costs.
Point A - TB, in which revenue (TR) = TC
Limitations to be observed when calculating TB
1. The volume of production is equal to the volume of sales.
2. Fixed costs are the same for any volume of production.
3. Variable costs vary in proportion to the volume of production.
4. The price does not change during the period for which the TB is determined.
5. The unit price and the resource unit cost remain constant.
The law of diminishing marginal returns is not absolute, but relative in nature and it operates only in the short term, when at least one of the factors of production remains unchanged.
Law: with an increase in the use of someone's factor of production, while the others remain unchanged, sooner or later a point is reached, from which the additional use of variable factors leads to a decrease in the increase in production.
The operation of this law presupposes the invariability of the state of technically and technologically production. And therefore, technological progress can change the boundaries of this law.
The long term is characterized by the fact that the firm is able to change all the factors of production used. In this period variable character of all applied factors of production allows the company to use the most optimal options for their combination. This will affect the value and dynamics of average costs (unit costs). If the company decided to increase the volume of production, but at the initial stage (ATC) they will first decrease, and then, when more and more capacities are involved in production, they will begin to increase.
The graph of long-term total costs shows seven different options (1-7) of the ATC behavior in short-term periods, since the long-term period is the sum of the short-term periods.
The long-term cost curve consists of options, which are called stages of growth. In each stage (I - III) the firm operates in the short term. The dynamics of the long-term cost curve can be explained using economies of scale. Changes by the firm of the parameters of its activities, i.e. the transition from one variant of the size of the enterprise to another is called change in production scale.
I - in this time interval, long-term costs decrease with an increase in the volume of output, i.e. economies of scale take place - positive economies of scale (from 0 to Q 1).
II - (this is from Q 1 to Q 2), at this time interval of production, the long-term ATC does not seem to react to an increase in the volume of production, i.e. remains unchanged. And the firm will have a constant effect of the scale of production (constant returns to scale).
III - long-term ATC with an increase in the volume of output grow and there is damage from an increase in the scale of production or negative economies of scale(from Q 2 to Q 3).
3. V general view profit is defined as the difference between total revenues and total costs for a certain period of time:
SP = TR –TS
TR ( total revenue) - the amount of cash receipts by the company from the sale of a certain amount of goods:
TR = P* Q
AR(average revenue) is the sum of cash receipts per unit of product sold.
Average revenue equals market price:
AR = TR/ Q = PQ/ Q = P
Mr(marginal revenue) is the increment in revenue that arises from the sale of the next unit of production. In perfect competition, it is equal to the market price:
Mr = ∆ TR/∆ Q = ∆(PQ) /∆ Q =∆ P
In connection with the classification of costs into external (explicit) and internal (implicit), different concepts of profit are assumed.
Explicit costs (external) are determined by the sum of the enterprise's expenses to pay for the purchased factors of production from outside.
Implicit costs (internal) are determined by the cost of resources owned by this enterprise.
If external costs are subtracted from total revenue, we get accounting profit - takes into account external costs, but does not take into account internal ones.
If internal costs are subtracted from accounting profit, we get economic profit.
Unlike accounting, economic profit takes into account both external and internal costs.
Normal profit appears when the total revenue of the enterprise or firm is equal to total costs, calculated as alternative. The minimum level of profitability is when it is profitable for an entrepreneur to run a business. "0" - zero economic profit.
Economic profit(pure) - its presence means that on this enterprise resources are used more efficiently.
Accounting profit exceeds the economic one by the amount of implicit costs. Economic profit serves as a criterion for the success of an enterprise.
Its presence or absence is an incentive to attract additional resources or switch them to other areas of use.
The goals of the firm are to maximize profits, which is the difference between total income and total costs. Since both costs and income are a function of the volume of production, the main problem for the company is to determine the optimal (best) volume of production. The firm will maximize profits at the volume of output at which the difference between total income and total costs is greatest, or at a volume at which the marginal income is equal to the marginal cost. If the firm's losses are less than its fixed costs, then the firm should continue to work (in the short run), if the losses are greater than its fixed costs, then the firm should stop production.
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High costs associated with sales promotion activities are characteristic of this stage, not only because of the small volume of sales, but mainly because there is a need for high level its stimulation in order to inform potential consumers about a new product and to ensure effective work trade enterprises.
The high costs associated with stopping and departing trains can be minimized, since the shipped cargo can go without stopping all the way to its destination or sorting point.
Large production costs are associated with the implementation of quality control of products. These costs can be divided into two groups: a) unnecessary consumption of material and products due to the need to destroy them to control product quality; b) the costs of maintaining the control apparatus, which are still quite high.
The disadvantages are the potentially high costs of the VTS, the possibility of abuse in the choice of forms and prices for the sale of assets, long periods of reimbursement of uninsured liabilities. In addition, the case is being liquidated, which negatively affects the state of interbank competition.
Despite the very high production costs of SPCM, the level of the price achievable for the product cannot adequately compete with the level of the world price.
This will entail high costs associated with the need to pay commissions to dealers through which the corresponding securities will be bought and sold. Therefore, it is customary to solve the problem as follows.
The consequence of these shortcomings is overstocking, an unreasonable variety of expensive purchases, high production costs at the design and manufacturing stages, as well as organizational difficulties.
Defining variables becomes very difficult, if not completely hopeless, when relatively large manufacturing costs are to be expected. This is better when there is a high proportion of material costs or when the approximate ratio of manufacturing costs to material costs is known for a given product group. In all cases, when the costs of mathematical processing of cost issues are foreseen to be very high, certain assumptions and simplifications must be made, which requires a certain skill and experience. Therefore, it is necessary to assess in advance whether it is worth making the costs of calculations, while not forgetting that calculations by analogy can be widely used.
A firm that can establish such a reputation charges a high price to cover the high costs and costs associated with improving quality. Let's say Caterpillar offers construction machines highest quality and excellent service maintenance... It can afford to achieve the goal of leadership in quality at higher prices than its competitors.
A firm that can establish such a reputation charges a high price to cover the high costs and costs associated with improving quality. For example, Kater-pillar offers construction machines of the highest quality and excellent service. It can afford to achieve the goal of leadership in quality at higher prices than its competitors.
The first option turns out to be economically feasible, despite the fact that it requires large total investment and high production costs in the second period of operation.
A supplier of a product, for which demand is elastic, may refuse to raise the price and reduce the size of the commercial loan due to high costs. In other circumstances, the supplier may incur the expense at the expense of the purchaser. The buyer must determine who bears the cost burden. The buyer who pays for the costs may try to find another supplier. He must realize that the cost of a commercial loan changes over time. During the growth period interest rate and expensive money, suppliers can increase the prices of their goods, given the high costs associated with the presence of receivables. This price increase should not be confused with price increases due to changes in supply and demand in commodity markets.
