Question

Write a paper of 300-600 words presenting your analysis of one of the following topics: Explain the concept of cost and production from the point of view of a firm.

Answer 1

Cost

Cost for a firm is cost of inputs used for producing goods. A firm aims at minimizing its cost of production.

Cost is of two types:

Accounting and economic

Accounting cost includes only explicit cost whereas economic cost include both explicit cost and implicit cost

Explicit cost is those cost which are paid in money terms, whereas implicit cost is the estimated cost of inputs provided by the owner.

On the basis of time period available to the firms, short run cost can be classified into fixed cost and variable cost whereas there is no fixed cost as quantity of every input can be changed.

Fixed cost is the cost of fixed inputs which remains same at all levels of output including at zero level of output

Variable cost is the payment for variable inputs that changes according to output.

Production

Production is the act of making goods by using the inputs. It can be production of individual firm or nation(gdp).

For a firm , production is process of manufacturing something for consumption using inputs and technology. The realtionship between inputs and output is explained by production function. There are various theories and laws regarding the productin of firms like law of variable proportions, law of returns to scale.

Firm aims at increasing its production at minimum cost.

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