COST AND COST CURVES

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COST AND COST CURVES

CONCEPT OF COST OF PRODUCTION
The cost of production of an individual firm operating in a market has an important influence on the market supply of a commodity. It is vcry necessary 10 have a clear . idea about the concept of cost production and then proceed to study the cost curves.
Nominal and Real Cost I may be nominal cost or real cost. Unmindful emf of production. II is also called These expenses arc important
from the point of view of the producer. lIe must make sure that the price of the product, in the long  cover these expense, including normal
profit, otherwise he cannot afford to carry on the business.  Attempts have been made to “pierce the monetary vei I”and to establish cost Oil a real hasis. The real cost of production has been variously interpreted. Adam  smith regarded pains and sacrifices of labor as real cost. Marx-hull includes  “real cost of efforts of various qualities” and “real cost of waiting.”called the social cost by Mar. hall. Costs process The Austrian school of economists and their followers gave a I. Marshall. A -Principles of Economics (81h ed.), p. 350

new concept of real costs. According to them. the real cost of production of a given commodity is the next best alteration acridity in order tll oh lain that condition. It is also called opportunity rusl or ,Ii~- placement {‘ust. From the point of view of the community, as a whole, thc money costs do not 11.’11 the whole story. It is the real cost which is more important. l\I\lIU’~ {‘II~Iand the Real (‘o~t do not mill cklc, It is very seldom that the real cost of a com mod- . it  may be equal to the money cost. As Marshall puts it. “If the purchasing power of money in terms of effort remained about constant, and if the rate of remuneration for waiting has remained about constant. then the 1II0ney measure of costs corresponds to real costs; but such a correspondence is never to be assumed lightly.”!
Thus, there is very little connection between money costs and real costs, The two can never be equal in a world of change, as our world is. whether we Consider the long period or the short period. The value of land depends on scarcity. The question of cost in terms of effort and sacrifice in this case does not arise. The earnings of cinema stars. professors. collies. sweepers, peasants, businessmen, ctc., seldom correspond to the respective efforts and sacrifices undergone by each class. By economic costs is meant those payments which must be received by resource owners in order to ensure that they will continue to supply them in the process of production. This definition is based on the fact that resources arc scarce and they have alternative uses. To use them in one process is to deny their use in other processes. Economic cost includes normal profit. Costs of production have also heck classified a. explicit and implicit costs. implicit! (‘It ” arc co t~ of self-owned and self employed resources such as salary of the proprietor or return on the entrepreneur’s own investment. These costs are frequently ignored in calculating the expenses of production. E”pill l””ts arc the paid-out costs, i.e. payments made for productive resources purchased or hired by the firm. consist of the salaries and wages paid to the employees, prices of raw and semi-finished materials, overhead costs and payments into depreciation and sinking fund accounts. These are firm’s accounting expenses, If we add to the money expenses two items, “iz.,

I bid  alternative or opportunity costs and normal profits. we get the full COsts of a firm as distinguished from husi costs which are synonymous with firm’s total money expenses as computed by ordinary accounting methods. The entrepreneur St Be sure of normal profit if he is to continue in business. In this sense normal prutit 100 is a (‘lIsl,

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COST AND COST CURVES