Concept of cost and revenue in economics pdf

Since we are unable to have everything we desire, we must make choices on how we will use our resources. One conclusion of the present analysis is that they represent different qpes of concepts. Total fixed costs tfc average fixed costs afc total variable costs tvc average variable cost avc total cost tc average total cost atc marginal cost mc 4. The concept of business cost is similar to the accounting or actual cost. Marginal cost is the increase in total cost that results from increasing production by one unit of output. Economic analysis is required for various concepts such as demand, profit, cost, and competition. Production and costs important questions for class 12 economics concept of cost function. In figure 1 a, a total revenue curve is sloping upward from the origin to point k. Thus, if a balance sheet shows an asset at a certain value it should be assumed that this is its cost unless it is categorically stated otherwise. Economics module 3 cost and revenue producing goods and services 76 notes we can express the above example in the form of a table as follows. For producing the output, the firm needs to employ inputs. Jan 21, 2019 concept of revenue hindi chapter 9 microeconomics class 1112. You know that a commodity can be purchased in the market by paying a certain price. Use the following information to frame your answers and score extraordinary marks in your examinations.

Here, costs include imputed value of the entrepreneurs own resources and services, as well as the salary of the ownermanager. Concept of opportunity cost is closely related to the concept of economic profit or economic rent. Revenuequestion 1consider the example of a firm which produces and sells studio recording equipment. Accounting is concerned with past events and it requires consistency and comparability that is why it requires the accounting transactions to be recorded at their historical costs. Cost analysis is all about the study of the behavior of cost with respect to various production criteria like the scale of operations, size of output, etc. Here tr, ar, mr are total revenue, average revenue and marginal revenue curves respectively. Opportunity cost is a direct implication of scarcity. Economics is the study of scarcity and choice scarcity means that there is a finite amount of a good or service basically they are limited. The cost of revenue is the total cost of manufacturing and delivering a product or service. If you produce more than x sub 0 shoes youll make a profit.

Revenue cbse notes for class 12 micro economics learn cbse. Cost concept of accounting play accounting explanation. Jun 04, 2019 revenue cbse notes for class 12 micro economics. Cost curves or cost concepts in economics authorstream presentation. Managerial economics notes pdf 2020 mba geektonight. In order to understand the cost function well, in this article, we will look at various cost concepts. This 206page guide contains 230 sections that cover some 500 economic notions organized in a logical order.

The organizations decision of maximizing profit depends on the behavior of its costs and revenues. The concept of profit in accounting and economics in general, the term profit stands for the difference between revenue and costs. Revenue is essential for nearly every type of business. In the context of project evaluation a cost benefit test is a simple decision rule. Ordinarily, costs refer to the money expenses incurred by a firm in the production process. In order to understand the meaning of cost let us take the example of a farmer.

Because something is limited, we need to make decisions regarding how we use and allocate our resources. Lecture 8 theory of cost and revenue economics notes edurev. It is all of the payments or expenditures necessary to obtain the factors of production of land, labor, capital and management. In general terms, cost refers to an amount to be paid or given. The sum of revenues from all products and services that a company produces is called total revenue tr.

Production in the short run, total product, average and marginal. Business costs include all the expenses which are incurred in carrying out a business. Quantity demanded 000total revenue 000marginal revenue 000103948576675849310211112using the information contained in the example calculate total and marginal revenue. Some of the most important decisions pertaining to business often relate to the cost of production, instead of physical resources themselves. Gregory mankiws principles of microeconomics, 2nd edition, chapter 1 p. By cost of production is meant the total sum of money required for the production of a specific quantity of output. Managerial economics 2 a close interrelationship between management and economics had led to the development of managerial economics. Cost it refers to the expenditure incurred by a producer on the factor as well as nonfactor inputs for a given amount of output of a commodity 2. This chapter is numerically based and comprises of the concepts of revenue, total revenue, average revenue, marginal revenue and their relationships, both when price is constant and when price is falling.

Define the meaning of economics discuss the concept of business economics identify the differences between economics and business economics describe microeconomics and macroeconomics explain the laws of economics discuss economic static and dynamics. Cost of revenue information is found in a companys income statement, and is designed. Private costs are the economic costs which are actually incurred or provided for by an individual or a firm. Normal profit is a necessary minimum earning which a firm must get to remain in its present occupation. The units of output have been shown on horizontal axis while revenue on vertical axis. Lets understand the general concept of costs for that. However, for one and the same activity, profit does not necessari ly have to be the same number under different points of view. Economic theory distinguishes between shortrun costs and longrun. Hence, economic cost refers to the costs involved for all the factors of production.

Concept of cost of production by cost of production is meant the total sum of money required for the production of a specific quantity of output. Cost it refers to the expenditure incurred by a producer on the factor as well as nonfactor inputs for a given amount of output of a commodity. In this way, managerial economics is considered as economics applied to problems of choice or. Units of output total cost average cost marginal cost shirts rs. Questions on revenue economics online economics online. Costbenefit analysis is the examination of a decision in terms of its consequences or costs and benefits. The shadow price of a good measures the net impact on social welfare of a unit increase in the supply of that good by the public sector. Marginal cost is an increase in total cost that results from a one unit increase in output. Continue reading concepts of economic costs we have discussed the.

Total revenue simply means the total amount of money that the firm receives from sales of its product or other sources. The table below shows the demand for a product where there is a. Then, the opportunity cost of a quintal of wheat is the amount of output of potatoes given up. Revenue is the income generated from the sale of goods and services in a market. A firm earns or makes economic profit only when besides covering various costs of operation, a firm is also able to earn more than its opportunity cost or its possible earnings under the. The marginal and incremental cost concepts are needed in deciding whether a firm needs to expand its production or not. The total cost concept is useful in breakeven analysis and finding out whether a firm is making profit or not. Revenue refers to the amount received by a firm from the sale of a given quantity of a commodity in the market.

There are various concepts of cost that a firm considers relevant under various circumstances. Aug 28, 2019 relevant cost is a managerial accounting term that describes avoidable costs that are incurred when making business decisions. Theory of costs and revenue introduction main objective of a firm. Definition of revenue revenue is defined as the amount a person receives by selling a certain quantity of the commodity. Average revenue ar price per unit total revenue output. It is defined as the cost that results from a one unit change in the production rate.

The table below shows the demand for a product where there is a downward sloping demand curve. Below is the list of managerial economics books recommended by the top university in india yogesh maheswari, managerial economics, phi learning, new delhi, 2005 gupta g. In the above case, the private cost for giga dye and chemicals limited is rs. It is all of the payments or expenditures necessary to obtain the factors of production of land, labor, capital and management required to produce a commodity. Cost function a cost function shows the functional relationship between output and cost of production. The revenue concepts are concerned with total revenue, average revenue and marginal revenue. In fact the study of cost is not complete, if we do not talk about revenue. Relevant cost is a managerial accounting term that describes avoidable costs that are incurred when making business decisions. Meaning of revenue revenue of a firm is its money receipts from the sale of its product in a given period. Revenue, in economics, the income that a firm receives from the sale of a good or service to its customers technically, revenue is calculated by multiplying the price p of the good by the quantity produced and sold q. In other words, cost can be defined as monetary expenses that are incurred by an organization for a specified tiling or activity.

The concept of revenue consists of three important terms. Revenue management is an economic discipline appropriate to many service industries in which market segment pricing1 is combined with statistical analysis to expand the market for the service and increase. Read this article to learn about the meaning and concept of revenue, micro economics. The, short run average cost curve falls in the beginning, reaches a minimum and then begins to rise. When cost are calculated for a firms income tax returns, the law. When cost are calculated for a firms income tax returns, the law requires use of historical costs or the actual cash outlay.

Historical cost is the value of a resource given up or a liability incurred to acquire an assetservice at the time when the resource was given up or the liability incurred. It represents money costs which we want to incur in order to acquire the factors of production. Cost benefit analysis is the examination of a decision in terms of its consequences or costs and benefits. Marginal revenue mr the change in revenue from selling one extra unit of output. Revenue, in economics, the income that a firm receives from the sale of a good or service to its customers. Total revenue refers to total receipts from the sale of a given quantity of a commodity. It is used for analyzing the cost of a project in short and long run.

Economic concepts and theories provides concise, useful explanations of various economic concepts and theories using concrete examples and real data. The concept of economic development is not considered explicitly. Dec 07, 2019 production and costs important questions for class 12 economics concept of cost function. It is all about the financial aspects of production. Cost, a key concept in economics, is the monetary expense incurred by organizations for various purposes, such as acquiring resources, producing goods and services, advertising, and hiring workers. The opportunity cost of an action is what you must give up when you make that choice. Pdf on aug 6, 2018, ebele stella nwokoye and others published chapter. Hello students, below is a topic of economics class 12 and class 11 based on the pattern of cbse class 12 economics. Sep 30, 2019 the cost concept of accounting states that all acquisition of items such as assets or things needed for expending should be recorded and retained in books at cost. Total revenue simply means the total amount of money. In the words of dooley, the revenue of a firm is its sales, receipts or income. Discuss the concept of business economics identify the differences between economics and business. The meaning and concept of revenue micro economics. Hence, it is important for producers to understand cost analysis.

We study some important concepts of costs, and traditional and modern theories. Total revenue, average revenue and marginal revenue. Your revenue will be above your cost, if you produce less your revenue will be below. It is all of the payments or expenditures necessary to obtain the factors of.

Opportunity cost this concept of scarcity leads to the idea of opportunity cost. Revenue is another very important concept in economics. Explain the concept of opportunity cost and explain why accounting profits and economic profits are not the same. This is sum total of various business expenses of giga such as cost of raw material, salaries and wages overhead expenses and selling and distribution expenses.

Marginal costs and marginal revenue are key concepts in mainstream economic thought. There are various concepts of cost that a firm considers relevant under. Technically, revenue is calculated by multiplying the price p of the good by the quantity produced and sold q. Economics is an idea which make a relationship between scarce means and unlimited wants. It is frequently argued that these are one and the same concept. Cbse notes cbse notes micro economics ncert solutions micro economics. The cost of loss to the environment caused by giga is estimated to be rs. Total revenue is the sum of the income received from the sale of total goods. To understand the process of price determination and the forces behind supply, we must understand the nature of costs.

Revenue cbse notes for class 12 micro economics cbse notescbse notes micro economicsncert solutions micro economics introduction this chapter is numerically based and comprises of the concepts of revenue, total revenue, average revenue, marginal revenue and their relationships, both when price is constant and when price is falling. The revenue concepts are concerned with total revenue, average revenue and. The term revenue refers to the income obtained by a firm through the sale of goods at different prices. Scarcity is the condition in which our wants are greater than our limited resources. Note that this number is reflected as a negative number because expenses are a. The amount of money that a producer receives in exchange for the sale proceeds is known as revenue. In economics, cost of production has a special meaning. Total revenue is obtained by multiplying the quantity of the commodity sold with the price of the commodity. Rather, the discussion is confined to the concept of economic growth.

Microeconomics interaction between individual buyerseller. Example of cost concepts y tfc tvc tc afc avc atc mc 10 30 48 65 81 96 108 116 120 117 1600 2000 2200 2600 3200 4000 5000 6200 7600 2000 2600 3000 3200 3600 4200 5000 6000 7200 8600 100 33. The concept of profit maximization profit is defined as total revenue minus total cost. The average cost concept is significant for calculating the per unit profit. Important questions for class 12 economics concept of cost. The concept of relevant cost is used to eliminate unnecessary data. In this chapter our concern is with some basic preliminary concepts. In this lesson, youll learn what revenue is, what its not, and how it fits into the overall income of a business. Profit maximisation profit revenue cost of production cost of production is the expenditure incurred by a firm when producing a given level of output revenue is the total income earned by a firm when it sells a given level of output. Cost theory derives other cost measures, which can be useful for firms that are planning to scale production up or down.