COST OF

PRODUCTION
 TYPES OF COST
1. Actual Cost (Or Outlay Or Accounting Cost
2. Sunk Cost
3. Fixed Cost And Variable Cost
4. Explicit And Implicit Cost
5. Opportunity Cost
6. Private Cost And Social Cost
• COST FUNCTION:

The cost function can be expressed as C=f( S,X,Pf,T ……..)

where S=size of the plant, X=level of output,
T=Technology/technique of production, Pf= prices of inputs.
COMPLETE THE FOLLOWING SCHEDULE:
Outp Total Total Total Average Average Average Marginal
ut(Q) fixed variable cost fixed variable cost cost
cost cost cost cost
TC AC MC
TFC TVC AFC AVC

0 1000 0

10 1000 400

20 1000 700

30 1000 930

40 1000 1100

50 1000 1400

60 1000 1900

70 1000 2100
COMPLETE THE FOLLOWING SCHEDULE:

Outp Total Total Total Average Average Average Marginal

ut(Q) fixed variable cost fixed variable cost cost
cost cost cost cost
TC AC MC
TFC TVC AFC AVC

0 1000 0 1000 - 0 - -

10 1000 400 1400 100 40 140 40

20 1000 700 1700 50 35 85 30

30 1000 930 1930 33.3 31 64.33 23

40 1000 1100 2100 25 27.5 52.5 17

50 1000 1400 2400 20 28 48 30

60 1000 1900 2900 16.67 31.67 48.44 50

70 1000 2500 3500 14.28 35.7 49.9 60

SHAPES OF THE SHORT RUN COST CURVES:
1.Total Fixed Cost(TFC):It is a horizontal line to the output
axis.
2. Total variable cost (TVC):TVC=1/ (TP),that is it varies
inversely with the TP in the short run.
3. Total Cost (TC): TFC+TVC .
4. Average Fixed Cost (AFC): AFC=TFC/Q .
5. Average Variable cost (AVC): AVC is the reciprocal of the AP
in the short run.
6. Average Cost (AC): takes the combined shape of the AFC
and the AVC.
7. Marginal cost (MC): MC is the reciprocal of the MP of the
variable factors.
 NUMERICALS:

Q1. If the Short run total cost function is given as

TC = 100 + 50Q -12Q2 + Q3 where Q=output.

Find the AC, AVC, and MC at 10 units of output.
Q2. If AC= 200/Y -6Y +8Y2 where Y=output , find
i. TFC
ii. ii. The point where the AVC is minimum and
iii.MC at Y=4 units
 Q3. Given the Total cost function TC = 4000 +30X -12X2 + X3

i. Find the value of output at the Point of Inflection.

ii. At what rate of output Stage II of the production
function begins.
 Q4. Total cost function TC = 273√X2 find the MC at a
output(X) = 27 units.

 
Q5. Given the MC function i.e. MC=0.6X2 -2X +5,
find the Total cost function if the TFC =1000 at
X=10 units.
Q6.Complete the following table.

Output TFC TVC TC MC AFC AVC AC

0 60

1 100

2 120

3 80

4 400

5 500