In the classification of costs, in addition to fixed, variable and average, the category of marginal costs is distinguished. They are all interconnected; to determine the value of one type, you need to know the indicator of the other. Thus, marginal costs are calculated as the quotient of the increase in total costs and the increase in output. To minimize costs, that is, to achieve what every business entity strives for, it is necessary to compare marginal and average costs. What conditions of these two indicators are optimal for the manufacturer will be discussed in this article.
Types of costs
In the short term, when the influence economic factors realistically provide for, distinguish between fixed and variable costs. They are easy to classify because variables vary with the volume of goods produced, but constants do not. Expenses associated with the operation of buildings and equipment; salary of management personnel; payment for guards and cleaners is a monetary expenditure of resources that constitute fixed costs. Whether the enterprise produces products or not, you still have to pay for them monthly.
The salaries of the main workers, raw materials and materials are the resources that make up the variable factors of production. They vary depending on the volume of output.
Total costs are the sum of fixed and variable costs. Average expenses are the money spent on the production of one unit of a good.
Marginal cost shows the amount of money that must be spent to increase output by one unit.
Marginal cost schedule
The graph shows the curves of two types of costs: marginal and average. The point where the two functions intersect is the minimum average cost. This is no coincidence, since these costs are interconnected. Average costs are the sum of average fixed and variable costs. Fixed costs do not depend on production volume, and when considering marginal costs, one is interested in their change with an increase/decrease in volume. Therefore, marginal cost implies an increase in variable costs. It follows that average and marginal costs must be compared with each other when finding the optimal volume.
The graph shows that marginal costs begin to increase faster than average costs. That is, average costs are still decreasing with increasing volume, but marginal costs have already creeped up.
Balance point
Turning our attention to the graph again, we can draw the following conclusions:
- AC is located above MS because it is a large value, including in addition to variables and fixed costs. While MS consists of an increase only in variable costs.
- The previous fact explains the right position of the AC relative to the MS. This is because per unit of volume growth, MC contains the difference in variable costs, and average costs (AC), in addition to variables, also include constant ones fixed costs.
- After the intersection of functions at the minimum point, an increase in marginal costs is observed faster than average. In this case, production becomes unprofitable.
The firm's equilibrium point in the market corresponds to the optimal production size at which the business entity receives a stable income. The value of this volume is equal to the intersection of the MS and AC curves at the minimum AC value.
Comparison of AC and MS
When marginal costs with volume growth are less than average costs, it is advisable for the company's top managers to make a decision to increase production.
When these two quantities are equal, equilibrium is achieved in the volume of output.
It is worth stopping the increase in output volume when the value of MC is reached, which will be higher than AC.
Average costs in the long run
All costs in the long run are characterized by a variable nature. A firm that has reached a volume at which average costs begin to rise in the long run is forced to begin changing factors of production that previously remained unchanged. It turns out that the total average costs are identical to the average variables.
The long-run average cost curve is a line that touches at the minimum points of the variable cost curves. The graph is shown in the figure. At point Q2, the minimum cost is achieved, and then it is necessary to observe: if there is a negative effect of scale, which is rare in practice, then at the volume at Q2 it is necessary to stop increasing output.
Marginal revenue MR
An alternative approach in a modern market economy to determine the volume of production at which costs will be minimal and profits will be maximum is to compare the values of the marginal values of income and costs.
Marginal Revenue - Gain Money, which the enterprise receives from an additionally sold unit of production.
By comparing the amounts that each additional unit of output added to total costs and gross income, one can determine the point of maximizing profit and minimizing costs, expressed by finding the optimal volume.
Analytical comparison of MS and MR
As an example, fictitious data from the analyzed company is presented below.
Table 1
Production volume, quantity | Gross income (quantity*price) | Gross costs, vehicle | Marginal Revenue | Marginal cost |
||
Each unit of volume corresponds to a market price, which decreases as supply increases. The income generated by the sale of each unit of output is determined by multiplying the volume of output and the price. Gross costs increase with each additional unit of output. Profit is determined after deducting all costs from gross income. The marginal values of income and costs are calculated as the difference between the corresponding gross values and the increase in production volume.
Comparing the last two columns of the table, conclusions are drawn that when producing goods from 1 to 6 units, marginal costs are covered by income, and then their growth is observed. Even when producing goods in a volume of 6 units, maximum profit is achieved. Therefore, after a company increases production of a product to 6 units, it will not be profitable for it to increase it further.
Graphical comparison of MS and MR
When determining the optimal volume graphically, the following conditions are typical:
- Marginal revenue above costs - expansion of production.
- Equality of values determines the equilibrium point at which maximum profit is achieved. Product output becomes stable.
- The marginal cost of production exceeds the marginal revenue - a sign of unprofitable production at a loss to the company.
Marginal cost theory
In order for an economic entity to make a decision to increase production volume, an economic tool such as a comparison of marginal costs with average costs and marginal revenue comes to the rescue.
If, in the usual sense, costs are the costs of producing products, then the marginal type of these costs is the amount of money that needs to be invested in production in order to increase the volume of output by an additional unit. When production is reduced, marginal cost shows the amount of money that can be saved.
Every organization strives to achieve maximum profit. Any production incurs costs for the purchase of factors of production. At the same time, the organization strives to achieve such a level that a given volume of production is provided at the lowest possible cost. The firm cannot influence the prices of resources. But, knowing the dependence of production volumes on the number of variable costs, costs can be calculated. Cost formulas will be presented below.
Types of costs
From an organizational point of view, expenses are divided into the following groups:
- individual (expenses of a particular enterprise) and social (costs of manufacturing a specific type of product incurred by the entire economy);
- alternative;
- production;
- are common.
The second group is further divided into several elements.
Total expenses
Before studying how costs and cost formulas are calculated, let's look at the basic terms.
Total costs (TC) are the total costs of producing a certain volume of products. In the short term, a number of factors (for example, capital) do not change, and some costs do not depend on output volumes. This is called total fixed costs (TFC). The amount of costs that changes with output is called total variable costs (TVC). How to calculate total costs? Formula:
Fixed costs, the calculation formula for which will be presented below, include: interest on loans, depreciation, insurance premiums, rent, wages. Even if the organization does not work, it must pay rent and loan debt. Variable expenses include salaries, costs of purchasing materials, paying for electricity, etc.
With an increase in output volumes, variable production costs, the calculation formulas for which were presented earlier:
- grow proportionally;
- slow down growth when reaching the maximum profitable production volume;
- resume growth due to violation of the optimal size of the enterprise.
Average expenses
Wanting to maximize profits, the organization seeks to reduce costs per unit of product. This ratio shows a parameter such as (ATC) average cost. Formula:
ATC = TC\Q.
ATC = AFC + AVC.
Marginal costs
Change total amount costs for increasing or decreasing production volume per unit show marginal costs. Formula:
From an economic point of view, marginal costs are very important in determining the behavior of an organization in market conditions.
Relationship
Marginal cost must be less than total average cost (per unit). Failure to comply with this ratio indicates a violation of the optimal size of the enterprise. Average costs will change in the same way as marginal costs. It is impossible to constantly increase production volume. This is the law of diminishing returns. At a certain level, variable costs, the calculation formula for which was presented earlier, will reach their maximum. After this critical level, an increase in production volumes even by one will lead to an increase in all types of costs.
Example
Having information about the volume of production and the level of fixed costs, you can calculate everything existing species costs.
Issue, Q, pcs. | Total costs, TC in rubles | ||||||
Without engaging in production, the organization incurs fixed costs of 60 thousand rubles.
Variable costs are calculated using the formula: VC = TC - FC.
If the organization is not engaged in production, the amount of variable costs will be zero. With an increase in production by 1 piece, VC will be: 130 - 60 = 70 rubles, etc.
Marginal costs are calculated using the formula:
MC = ΔTC / 1 = ΔTC = TC(n) - TC(n-1).
The denominator of the fraction is 1, since each time the volume of production increases by 1 piece. All other costs are calculated using standard formulas.
Opportunity Cost
Accounting expenses are the cost of the resources used in their purchase prices. They are also called explicit. The amount of these costs can always be calculated and justified with a specific document. These include:
- salary;
- equipment rental costs;
- fare;
- payment for materials, bank services, etc.
Economic costs are the cost of other assets that could be obtained from alternative uses of resources. Economic costs = Explicit + Implicit costs. These two types of expenses most often do not coincide.
Implicit costs include payments that a firm could receive if it used its resources more profitably. If they were bought in a competitive market, their price would be the best among the alternatives. But pricing is influenced by the state and market imperfections. Therefore, the market price may not reflect the true cost of the resource and may be higher or lower than the opportunity cost. Let us analyze in more detail the economic costs and cost formulas.
Examples
An entrepreneur, working for himself, receives a certain profit from his activities. If the sum of all expenses incurred is higher than the income received, then the entrepreneur ultimately suffers a net loss. It, together with net profit, is recorded in documents and refers to explicit costs. If an entrepreneur worked from home and received an income that exceeded his net profit, then the difference between these values would constitute implicit costs. For example, an entrepreneur receives a net profit of 15 thousand rubles, and if he were employed, he would have 20,000. in this case there are implicit costs. Cost formulas:
NI = Salary - Net profit = 20 - 15 = 5 thousand rubles.
Another example: an organization uses in its activities premises that belong to it by right of ownership. Explicit expenses in this case include the amount of utility costs (for example, 2 thousand rubles). If the organization rented out this premises, it would receive an income of 2.5 thousand rubles. It is clear that in this case the company would also pay utility bills monthly. But she would also receive net income. There are implicit costs here. Cost formulas:
NI = Rent - Utilities = 2.5 - 2 = 0.5 thousand rubles.
Returnable and sunk costs
The cost for an organization to enter and exit a market is called sunk costs. Expenses for registering an enterprise, obtaining a license, payment advertising campaign no one will return it, even if the company goes out of business. In a narrower sense, sunk costs include costs for resources that cannot be used in alternative ways, such as the purchase of specialized equipment. This category expenses do not relate to economic costs and do not affect Current state companies.
Costs and price
If the organization's average costs are market price, then the firm earns zero profit. If favorable conditions increase the price, the organization makes a profit. If the price corresponds to the minimum average cost, then the question arises about the feasibility of production. If the price does not cover even the minimum variable costs, then the losses from the liquidation of the company will be less than from its functioning.
International distribution of labor (IDL)
The world economy is based on MRI - the specialization of countries in the production individual species goods. This is the basis of any type of cooperation between all states of the world. The essence of MRI is revealed in its division and unification.
One manufacturing process cannot be divided into several separate ones. At the same time, such a division will make it possible to unite separate industries and territorial complexes and establish interconnections between countries. This is the essence of MRI. It is based on the economically advantageous specialization of individual countries in the production certain types goods and their exchange in quantitative and qualitative relationships.
Development factors
The following factors encourage countries to participate in MRI:
- Volume of the domestic market. U large countries there is greater opportunity to find the necessary factors of production and less need to engage in international specialization. At the same time, market relations are developing, import purchases are compensated by export specialization.
- The lower the state's potential, the greater the need to participate in MRI.
- High provision of the country with mono-resources (for example, oil) and low level provision of mineral resources encourages active participation in MRI.
- The more specific gravity basic industries in the structure of the economy, the less the need for MRI.
Each participant finds economic benefit in the process itself.
Each enterprise incurs certain costs in the course of its activities. There are different ones. One of them involves dividing costs into fixed and variable.
The concept of variable costs
Variable costs are those costs that are directly proportional to the volume of products and services produced. If the company produces bakery products, then as an example of variable costs for such an enterprise we can cite the consumption of flour, salt, and yeast. These costs will increase in proportion to the increase in the volume of bakery products produced.
One cost item can relate to both variable and fixed costs. Thus, energy costs for industrial ovens on which bread is baked will serve as an example of variable costs. And the cost of electricity for lighting an industrial building is a fixed cost.
There is also such a thing as conditionally variable costs. They are related to production volumes, but to a certain extent. At a small production level, some costs still do not decrease. If a production furnace is half loaded, then the same amount of electricity is consumed as a full furnace. That is, in this case, when production decreases, costs do not decrease. But with an increase in output volumes higher certain value costs will increase.
Main types of variable costs
Here are examples of variable costs of an enterprise:
- The wages of workers, which depend on the volume of products they produce. For example, in a bakery production there is a baker and a packer, if they have piecework wages. This also includes bonuses and rewards to sales specialists for specific volumes of products sold.
- Cost of raw materials. In our example, these are flour, yeast, sugar, salt, raisins, eggs, etc., packaging materials, bags, boxes, labels.
- are the cost of fuel and electricity that is spent on the production process. It could be natural gas or gasoline. It all depends on the specifics of a particular production.
- Another typical example of variable costs are taxes paid based on production volumes. These are excise taxes, taxes under tax), simplified taxation system (Simplified taxation system).
- Another example of variable costs is paying for services from other companies if the volume of use of these services is related to the organization's level of production. It can be transport companies, intermediary firms.
Variable costs are divided into direct and indirect
This division exists because different variable costs are included in the cost of the product differently.
Direct costs are immediately included in the cost of the product.
Indirect costs are distributed over the entire volume of goods produced in accordance with a certain base.
Average variable costs
This indicator is calculated by dividing all variable costs by production volume. Average variable costs can either decrease or increase as production volumes increase.
Let's look at the example of average variable costs in a bakery. Variable costs for the month amounted to 4,600 rubles, 212 tons of products were produced. Thus, average variable costs will be 21.70 rubles/t.
Concept and structure of fixed costs
They cannot be reduced in a short period of time. If output volumes decrease or increase, these costs will not change.
Fixed production costs usually include the following:
- rent for premises, shops, warehouses;
- utility fees;
- administration salary;
- costs of fuel and energy resources that are not consumed production equipment, but for lighting, heating, transport, etc.;
- advertising expenses;
- payment of interest on bank loans;
- purchase stationery, paper;
- costs for drinking water, tea, coffee for employees of the organization.
Gross costs
All of the above examples of fixed and variable costs add up to gross, that is, the total costs of the organization. As production volumes increase, gross costs increase in part variable costs.
All costs, in essence, represent payments for purchased resources - labor, materials, fuel, etc. The profitability indicator is calculated using the sum of fixed and variable costs. An example of calculating the profitability of core activities: divide profit by the amount of costs. Profitability shows the effectiveness of an organization. The higher the profitability, the better the organization performs. If profitability is below zero, then expenses exceed income, that is, the organization’s activities are ineffective.
Enterprise cost management
It is important to understand the essence of variable and fixed costs. With proper management of costs in an enterprise, their level can be reduced and greater profits can be obtained. It is almost impossible to reduce fixed costs, therefore effective work Cost reduction can be done in terms of variable costs.
How can you reduce costs in your enterprise?
Each organization works differently, but basically there are the following areas of cost reduction:
1. Reducing labor costs. It is necessary to consider the issue of optimizing the number of employees and tightening production standards. An employee can be laid off, and his responsibilities can be distributed among others, with additional payment for additional work. If production volumes increase at the enterprise and the need arises to hire additional people, then you can go by revising production standards and or increasing the volume of work in relation to old employees.
2. Raw materials are an important part of variable costs. Examples of their abbreviations could be as follows:
- searching for other suppliers or changing the terms of delivery by old suppliers;
- introduction of modern economical resource-saving processes, technologies, equipment;
- stopping the use of expensive raw materials or materials or replacing them with cheap analogues;
- carrying out joint purchases of raw materials with other buyers from one supplier;
- independent production of some components used in production.
3. Reduction of production costs.
This may include selecting other rental payment options or subletting space.
This also includes savings on utility bills, for which it is necessary to carefully use electricity, water, and heat.
Savings on repairs and maintenance of equipment, vehicles, premises, buildings. It is necessary to consider whether it is possible to postpone repairs or maintenance, whether it is possible to find new contractors for these purposes, or whether it is cheaper to do it yourself.
It is also necessary to pay attention to the fact that it may be more profitable and economical to narrow production and transfer some side functions to another manufacturer. Or, on the contrary, enlarge production and carry out some functions independently, refusing to cooperate with related companies.
Other areas of cost reduction may be the organization’s transport, advertising activities, reducing the tax burden, and paying off debts.
Any enterprise must take into account its costs. Work to reduce them will bring more profit and increase the efficiency of the organization.
Of great importance in economic practice is the classification of costs depending on their relationship with the volume of production.
In the short run, some resources remain unchanged, while others change to increase or decrease total output.
In accordance with this, all production costs are divided into permanent And variables. In this case, it is necessary to distinguish between costs for the entire volume output - full (total, total) production costs and production costs units products – average (unit) costs.
Enterprise costs for the entire output volume
Permanent(F.C.) are costs that do not depend on the volume of output ( Q) and arise even when production has not yet begun. Thus, even before production begins, the enterprise should have at its disposal such factors as buildings, machines, and equipment. In the short term, fixed costs are depreciation, rent, security costs, and property taxes.
Variables(V.C.) – production costs, which vary depending on the volume of output. These include: main and auxiliary materials, wages workers, transportation costs, electricity costs for production purposes, etc.
Aggregate(TC) costs are the sum of fixed and variable costs:
TC = FC + VC.
The relationship between production volume and the level of production costs is described using the corresponding curves (Fig. 1).
Since fixed costs do not depend on production volume, the fixed cost curve ( F.C.) is represented by a horizontal line.
Variables ( V.C.) and cumulative ( TC) production costs increase along with an increase in output, but the growth rate of these costs is not the same. Starting from zero, as production increases, they initially grow very quickly, then as production increases, their growth rate slows down, they grow more slowly as production increases. Subsequently, however, when the law of diminishing returns comes into play, variable and total costs begin to outpace production growth.
Average (unit) production costs
Average constants costs ( A.F.C.) – fixed costs per unit of production:
AFC = FC: Q.
As production volume increases, fixed costs are distributed over more products, so that average fixed costs decrease as production volume increases.
Average variables costs ( AVC) – variable costs per unit of production:
AVC = VC: Q.
Rice. 1. Cumulative, variable and constant curves
production costs
As production volume increases, average variable costs first fall, reach their minimum, and then, under the influence of the law of diminishing returns, begin to rise.
Average cumulative costs ( ATC) – total costs per unit of production:
ATC = TC: Q.
Dynamics of averages total costs reflects the dynamics of average fixed and variable costs. While both are decreasing, the average total costs are falling, but when, as production volume increases, the growth of variable costs begins to outpace the fall in fixed costs, the average total costs begin to rise.
IN economic analysis widely used marginal cost(MS) – increase in costs as a result of producing one additional unit of product:
MS =Δ TC: Δ Q, or MS =Δ TCn –Δ TCn–1.
Marginal cost shows how much it would cost the firm to increase output per unit. Marginal costs have a decisive influence on the firm's choice of production volume, because it is precisely the indicator that the firm can influence.
As in the case of total costs, the dependence of average and marginal production costs on production volume is described by the curves of the corresponding indicators. The family of average and marginal production costs is presented in Fig.
Analysis of average and marginal cost curves shows, What:
− when marginal costs are less than average variable and average total ( MS< ABC And ATS), the production of each additional unit of output reduces average variable and average total costs;
− when marginal costs are greater than average variable and average total ( MS> ABC And ATS), the production of each new unit of output increases average variable and average total costs;
− when marginal costs are equal to average variable and average total, average variable and average total costs minimal.
Rice. 2. Limit (MC) and average (constant – AFC) curves
variable - AVC, total - ATC) costs
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Classification of a company's costs in the short term.
When analyzing costs, it is necessary to distinguish costs for the entire output, i.e. general (full, total) production costs, and production costs per unit of production, i.e. average (unit) costs.
Considering the costs of the entire output, one can find that when the volume of production changes, the value of some types of costs does not change, while the value of other types of costs is variable.
Fixed costs(F.C. – fixed costs) are costs that do not depend on the volume of production. These include the costs of maintaining buildings, major renovation, administrative and management expenses, rent, property insurance payments, some types of taxes.
The concept of fixed costs can be illustrated in Fig. 5.1. Let us plot the quantity of products produced on the x-axis (Q), and on the ordinate - costs (WITH). Then the fixed cost schedule (FC) will be a straight line parallel to the x-axis. Even when the enterprise does not produce anything, the value of these costs is not zero.
Rice. 5.1. Fixed costs
Variable costs(V.C. – variable costs) are costs, the value of which varies depending on changes in production volumes. Variable costs include costs of raw materials, materials, electricity, workers' compensation, expenses for auxiliary materials.
Variable costs increase or decrease in proportion to output (Fig. 5.2). In the initial stages of production
Rice. 5.2. Variable costs
production, they grow at a faster rate than manufactured products, but as they reach optimal release(at point Q 1) the growth rate of variable costs is decreasing. In larger firms, unit costs per unit of output are lower due to increased production efficiency, which is ensured by more high level specialization of workers and more complete use of capital equipment, so the growth of variable costs becomes slower than the increase in output. In the future, when the enterprise exceeds its optimal size, the law of diminishing returns (returns) comes into play and variable costs again begin to outpace production growth.
Law of Diminishing Marginal Productivity (Profitability) states that, starting from a certain point in time, each additional unit of a variable factor of production brings a smaller increase in total output than the previous one. This law takes place when any factor of production remains unchanged, for example, production technology or the size of the production territory, and is valid only for a short period of time, and not over a period of time. long period existence of humanity.
Let us explain the operation of the law using an example. Let's assume that the enterprise has a fixed amount of equipment and workers work in one shift. If an entrepreneur hires additional workers, work can be carried out in two shifts, which will lead to an increase in productivity and profitability. If the number of workers increases further, and workers begin to work in three shifts, then productivity and profitability will increase again. But if you continue to hire workers, there will be no increase in productivity. Such a constant factor as equipment has already exhausted its capabilities. The addition of additional variable resources (labor) to it will no longer give the same effect; on the contrary, starting from this moment, the costs per unit of output will increase.
The law of diminishing marginal productivity underlies the behavior of the profit-maximizing producer and determines the nature of the supply function on price (the supply curve).
It is important for an entrepreneur to know to what extent he can increase production volume so that variable costs do not become very large and do not exceed the profit margin. The differences between fixed and variable costs are significant. A manufacturer can control variable costs by changing the volume of output. Fixed costs must be paid regardless of production volume and are therefore beyond the control of management.
General costs(TS– total costs) is a set of fixed and variable costs of the company:
TC= F.C. + V.C..
Total costs are obtained by summing the fixed and variable cost curves. They repeat the configuration of the curve V.C., but are spaced from the origin by the amount F.C.(Fig. 5.3).
Rice. 5.3. General costs
For economic analysis, average costs are of particular interest.
Average costs is the cost per unit of production. The role of average costs in economic analysis is determined by the fact that, as a rule, the price of a product (service) is set per unit of production (per piece, kilogram, meter, etc.). Comparing average costs with price allows you to determine the amount of profit (or loss) per unit of product and decide on the feasibility of further production. Profit serves as a criterion for choosing the right strategy and tactics for a company.
Distinguish the following types average costs:
Average fixed costs ( AFC – average fixed costs) – fixed costs per unit of production:
АFC= F.C. / Q.
As production volume increases, fixed costs are distributed over an increasing number of products, so that average fixed costs decrease (Figure 5.4);
Average variable costs ( AVC – average variable costs) – variable costs per unit of production:
AVC= V.C./ Q.
As production volume increases AVC first they fall, due to increasing marginal productivity (profitability) they reach their minimum, and then, under the influence of the law of diminishing returns, they begin to increase. So the curve AVC has an arched shape (see Fig. 5.4);
average total costs ( ATS – average total costs) – total costs per unit of production:
ATS= TS/ Q.
Average costs can also be obtained by adding average fixed and average variable costs:
ATC= A.F.C.+ AVC.
Dynamics of averages total costs reflects the dynamics of average fixed and average variable costs. While both are decreasing, average total costs are falling, but when, as production volume increases, the growth of variable costs begins to outpace the fall in fixed costs, average total costs begin to rise. Graphically, average costs are depicted by summing the curves of average fixed and average variable costs and have a U-shape (see Fig. 5.4).
Rice. 5.4. Production costs per unit of production:
MS – limit, AFC – average constants, АВС – average variables,
ATS – average total production costs
The concepts of total and average costs are not enough to analyze the behavior of a company. Therefore, economists use another type of cost - marginal.
Marginal cost(MS – marginal costs) are the costs associated with producing an additional unit of output.
The marginal cost category is of strategic importance because it allows you to show the costs that the company will have to incur if it produces one more unit of output or
save if production is reduced by this unit. In other words, marginal cost is a value that a firm can directly control.
Marginal costs are obtained as the difference between total production costs ( n+ 1) units and production costs n product units:
MS= TSn+1 – TSn or MS=D TS/D Q,
where D is a small change in something,
TS– total costs;
Q- volume of production.
Marginal costs are presented graphically in Figure 5.4.
Let us comment on the basic relationships between average and marginal costs.
1. Marginal costs ( MS) do not depend on fixed costs ( FC), since the latter do not depend on production volume, but MS- These are incremental costs.
2. While marginal costs are less than average ( MS< AC), the average cost curve has a negative slope. This means that producing an additional unit of output reduces average cost.
3. When marginal costs are equal to average ( MS = AC), this means that average costs have stopped decreasing, but have not yet begun to increase. This is the point of minimum average cost ( AC= min).
4. When marginal costs become greater than average costs ( MS> AC), the average cost curve slopes upward, indicating an increase in average costs as a result of producing an additional unit of output.
5. Curve MS intersects the average variable cost curve ( ABC) and average costs ( AC) at the points of their minimum values.
To calculate costs and evaluate the production activities of enterprises in the West and Russia, they use various methods. Our economy has widely used methods based on the category production costs, which includes the total costs of production and sales of products. To calculate the cost, costs are classified into direct, directly going towards the creation of a unit of goods, and indirect, necessary for the functioning of the company as a whole.
Based on the previously introduced concepts of costs, or costs, we can introduce the concept added value, which is obtained by subtracting variable costs from the total income or revenue of the enterprise. In other words, it consists of fixed costs and net profit. This indicator is important for assessing production efficiency.