Question

Explain general concepts of the production and cost analysis

Answer 1

Concepts associated with cost

Total cost- it is the total cost incurred during the production of a commidity and it us the sum of variable and fixed cost occurred during the production.

Variable- The variable costs are costs that vary with the output. If the output is none the variable cost is also none, for examples such as wages, costs of raw materials and etc..

Fixed costs- The fixed costs remain fixed during the production process and it does not vary with the output. Examples such as land, buildings and machinery.

Average cost- Average cost is the cost per unit of output. It is found dividing the total cost by the quantities of output produced.

Marginal cost- The marginal cost is the additional cost incurred in the production process. It is the addition made to the total cost by producing an additional unit of the commodity.

Concepts associated with production

Total product- Total product measures the total volume of goods and services produced by the firm. The total product is depends upon the factors of production, as the factors of production increases the the total product also increases.

Average product- It is the per unit output produced by the firm. And it is calculated by dividing the total product by the number of units produced.

Marginal product- Marginal product is the addition made to the total product. It measures additional productivity by employing an additional unit of the variable input.