COSTS OF

PRODUCTION
1. Essence and structure of costs
2. Profit and income of firm
3. Classification of costs is in a short-
term period.
4. A dynamics of costs is in an of long
duration period.
5. Concepts about prices and pricing.
6. Principles of pricing.
7. Price policy of enterprise.
8. Types of prices, their application
domains and classification.
 It is needed to remember that a cost of any
blessing is a cost what we renounce, to get
desired. Because rareness of resources compels
us to search an alternative, I.e. the best variant
of the use of these resources. The question is
about the costs of lost opportunities, I.e.
alternative costs.
 In business is the cost of capital as costs of lost
opportunities. It is named a normal income, I.e. that
its by a size which retains a businessman in this
sphere of activity. We will make an example. To
open restaurant business, it is necessary to inlay an
original capital – 100 thousands They can be used
and othergates. To inlay in a bank under 10% annual
and to have 10 thousands annually These will be
alternative costs on a capital, which, which in
business must will be recovered in form normal
income. Those 10% annual - the best of possible
variants of the use of capital.
 External, they are obvious, indirect is the money
cost of resources which a businessman buys in on
a side. Raw material, materials, other resources,
and also salary of the hired workers, enter here.
 Internal, they non-obvious costs are a cost of
resources, belongings to the firm.
 Book-keeping service will take into account
external costs only, as they reflect motion of
money streams of firm – entering and outgoing.
Economic service must take into account all costs –
obvious and non-obvious.
 Profit and income of firm.

 An INCOME (Pr) is DIFFERENCE BETWEEN

GROSS PROFIT And GROSS PROFIT And
GROSS BY COSTS
 ECONOMIC EARNINGS are DIFFERENCE
BETWEEN GROSS PROFIT And COST of
INTERNAL And EXTERNAL
COMPLETIONS
 ACCOUNTING EARNING is IFFERENCE
BETWEEN GROSS PROFIT And EXTERNAL
COSTS
  
Classification of costs is in and
short-term period.
 Possibilities of firm to change the attracted
resources depend On duration of period of
production. One resources can be attracted
sufficiently rapid. For example, to hire the
number of workers is additional, to buy in more
raw material. An increase requires other more
than time. Building of new production corps, the
increase of sowing areas in agriculture will
demand the protracted terms. Therefore in the
theory of costs distinguish short-term and long-
term periods.
 A short-term period supposes the fixed
powers, I.e. it is and period which and firm can
not change during, I.e. to increase all resources.
More mobile resources (raw material,
materials, fuel, labour force) can change in this
period, less mobile are machine-tools,
buildings, buildings – no.
 Long-term is and period, prolonged enough,
that and firm could change all resources: and
more, and less mobile. Thus, in and short-term
period production capacities are the fixed
resource, in long-term is and changing
resource, I.e. all resources are changeable.
 CLASSIFICATION OF COSTS
IN SHORT-TERM PERIOD
 PERMANENT are costs the size of which does not change at the
change of production volumes (cost of permanent completions -
TFC)
 VARIABLES are costs the size of which changes at the change
of production volumes (cost of variable completions – TVC)
 The MIDDLE COMMITTED COSTS (AFC) are costs
calculating on unit of products of AFC=TFC/Q
 MIDDLE VARIABLE COSTS (AVC) are costs on unit of
products of AVC=TVC/Q
 GENERAL COSTS (TC) are and cost of permanent and
variable completions (TC=TFC+TVC)
 GENERAL MIDDLE COSTS (ATC)=TC/Q;
ATC=TC/Q=AFC+AVC
 Pay of obligations under securities: rent payments, committed
costs, depreciation, insurance payments, salary to the managerial
staff.
 A dynamics of costs is in an of long duration
period.

 In an of long duration period all costs are variable,

because this period is the prolonged enough in order
that and firm could change the volume of all resources,
including production capacities. Therefore here operate
the category of general middle costs (TELEPHONE
EXCHANGES).
 Costs of production are in an of long duration period
 The curve of long-term middle general costs shows
the least costs of production of unit of products for
every this production volume on condition that and
firm had enough time, to change the sizes of enterprise.
 In long-term – all resources are changeable. The arched curve is
explained by the positive and negative effects of scale. The
positive effect of scale reduces telephone EXCHANGES, and
curve decreasing, negative – promotes telephone EXCHANGES,
and curve rising.
 The positive effect of scale shows up in specialization of
production; effective use of capital: possibilities to use and
modern technique and progressive technology; manoeuvring
labour resources; diversifications of production.
 The negative effect of scale is related to the uncontrollability of
giant associations, when bureaucratization of administrative link
results in creation of numerous hierarchical services, exchange by
information between which either laboured or results in
distortions of commands, going from and central vehicle.
 Concepts about prices and
pricing.
 A price is an economic category, meaning the
sum of money, for which and salesman wants to
sell, and and buyer is ready to purchase and
commodity. The cost of certain amount of
commodity makes his cost, from here and price is
and money cost of commodity.
 Regardless of how forming of prices is
conducted on products, in attention some
общеэкономические criteria, determining the
rejections of prices upwards or downward from
the consumer cost of commodity, are accepted.
 Criteria: internal, external 
Internal criteria:
 - advertising
 - specific of producible products
 - features of production process
 - market strategy and tactic of producer
 - specific of life cycle of products
 - mobility of production process
 - duration of advancement to the chainlet from and producer to
the user
 - organization of service at and sale and in and subsequent period
 - market volume
 - image of producer, both at the internal and on external market
  
 External criteria:
 - political stability of country-producer and the
states, where and sale to the products of firm is;
 - absence at the open market of some necessary
resources (labour, material, financial);
 - character of adjusting of economy the state;
 - level and dynamics of inflation;
 - volume and distinguishing features of
existent and perspective purchasing demand;
 - presence and level of competition between the
producers of homogeneous products.
 Principles of pricing
 Methodology of pricing is an aggregate of general rules,
principles and methods: development of conception of
pricing, determination and ground of prices, forming of the
system of prices, management pricing.
 Principles are constantly operating substantive provisions,
characteristic for all system of prices and lyings in its basis.
 Major principles of pricing:
 scientific character of ground of prices;
 their having and special purpose orientation;
 continuity of process of pricing;
 unity of process of pricing and control after the observance
of prices.
 Principle of scientific character of ground of prices consists of necessity of cognition
and account for pricing of laws of development of market economy, law of cost,
law of demand and supply.
 The scientific ground of prices is based on the analysis of the state of affairs of
market, all market factors, and also operating system of prices. It is thus
necessary to define progress of production trends on and prospect, to forecast
the change of level of costs, demand, quality of products. Scientific character of
ground of prices in and great deal depends on plenitude of the informative
providing at their establishment.
 The having and special purpose orientation of prices consists of that it is necessary
expressly to determine priority economic and social problems, prices must be
used in the decision of which. The orientation of prices can exemplify on
mastering of on principle new, progressive products, increase of its quality. On
such products directly after its issue and to expansion of its production set
prices, providing and maximal income. Having and special purpose priorities
and having and special purpose orientation of prices change on every stage of
development of economy.
 Principle of continuity is determined by dynamic quality of process of
pricing. It shows up in that products in the motion from raw material
to the finished product pass and few stages. For of every stage of
товародвижения of the price is set. And also in prices constantly
made alteration and additions in connection with and removal from
the production of out-of-date commodities and mastering of new.
 Principle of unity of process of pricing and control after the observance of
prices consists in that public organs, settings and regulative prices, are
under an obligation to control them. Such control spreads foremost
on products and services which government control of prices is
carried out on. Control is carried out and on those commodities
which free prices are set on. A purpose of such control is verification
of rightness of application set by the legislation of rules of pricing. In
the case of violation of discipline of prices on enterprises and
organizations administrative and economic approvals are imposed.
Price policy of enterprise.
Principles of price policy
Achievement of the set size of
incomePrinciples
on unit ofoftheprice policy
inlaid
Achievement
capital of the set size of
income on unit of the
Providing of stable position inlaid
capital
at the market
Providing
Activation of of stable position
purchaser
at the market
demand
Activation
Observance of stateoflegal
purchaser
acts
demand
Observance of state legal acts
Aims of price policy
Forms of realization of price
Maintainances of position at
Aims of price policy policy
the market
Forms of realization of price
Maintainances
Maximization of position
of income on at policy
the market
all nomenclature of Maintainance of stability of
Maximization
commodityof income on prices
Maintainance
Price changeof stability of
Maximalall nomenclature
increase of sale toof
prices

Price
commodity
the products Establishment of single prices
Maximal increase at
of the
sale to Price change
Conquest of leadership Application of flexible prices
the products
market
Conquest of leadership at the
market
Price
policy
Establishment of single prices
Application of flexible prices

ofpolicy
firm
of firm
Methods of realization
Factors, determining price price policy
Methods of realization
policy
Factors, determining price price policy
Providing of the set price
policy mass delivery of
Demand
Providing
commoditiesof the set price
Suggestion mass delivery of
Demand Scale conquest of market
Fiscal policy of the state commodities
Suggestion Waiting of agiotage demand
Competitors Scale conquest of market
Fiscal policy of the state «Removal of creams» by a
Inflation
Competitors briefWaiting of agiotage
price increase demand
on new
«Removal of creams» by a
commodities
Inflation brief price increase on new
commodities
Types of prices, their application
domains and classification
 A wholesale is name prices on which products will be realized
by large parties. On such prices realization of products is
carried out and to the wholesale buyers (to the mediators).
With disintegration of the administrative-command system
of management the role of wholesale prices changed.
Practically left off to be used centralized the ratified price-
lists. The volumes of the centralized material-supply and
fund deliveries went down considerably. The network of
intermediary organizations of non-state patterns of
ownership broadened. A collective and private propert
became legal on most and products of the производственно-
технического setting capital goods, on which wholesale
prices were before set only (and retail did not exist).
 A retail is name prices on which and population
acquires commodities in the field of retail and
wholesale-retail trade, in the field of public food
consumption of all patterns of ownership. The
suggested retail prices are set on commodities,
entering the personal consumption. If to the middle of
80th the suggested retail prices were set only on the
commodities of folk consumption, then today the
commodities of the tehnical setting come forward in
and retail business the objects of purchase-sale. As
buyers of such products now can come forward not
only legal, on and physical persons.
 In the process of planning of new types of wares and objects for the production of
the again mastered types of products, commodities, services the prices limited
(maximum-possible), project and reference are used.
 In an economic analysis, planning and statistics along with actual (operating)
comparable (unchanging) prices, middle prices, price indexes, are used. Their application
is objectively needed in connection with and natural many price change, especially
by the processes of inflation.
  
 A price index is and coefficient of count, reflecting and price change on the
comparable circle of elements (commodities and services) for certain period.
 A cost-of-living-index characterizes time-history of general standard of prices on
goods and services, acquired by and population for an unproductive consumption.
This index settles accounts on the basis of dynamics of cost of «basket» of consumer
goods and services. He is to one of basic indexes of level of inflation in and country.
 In the process of planning and prognostication prognosis and planned prices, applied
at development of indicative plan, are used, business plan et cetera
 Classification of prices is based on classification of market which it appears on. On
this sign exchange, auction, commissions of prices are selected.
 Depending on territory actions select prices single on and country and regional prices
(half-length, zonal, local). Becoming of distinctions in prices on of the same type
commodities in different countries results in the necessity of the use of world prices,
that costs of world market. World prices are either really operating in the world
market prices on the commodities of this group or prices, acknowledged on and
certain period by organizations, playing and leading role in international trade, or
mean value of prices on analogical commodities, set in different countries and
regions.
 The system of prices is characterized by the followings
parameters:
 level;
 structure;
 dynamics.
 A standard of prices is absolute quantitative expression of
price in money. A pattern of prices is certain correlations of
elements of price in percents or stakes. A dynamics of prices is
time-history of level of price.
 All operating prices differentiate between itself on structural
elements and доле these elements in the general size of price.
 In and general view the cost of any commodity consists of
three constituents:
 costs (prime price) of production and appeal;
 taxes, collections, отчисления4
 income (producer, mediators, retail salesman).