CHAPTER 7

COST
GROUP 1
KIM JUBILEE CASENCIA
FLORDELIZA NANOY
IRISH CAYAO
ERMAN DAVE SABUYA
EDRIAN CAREJON
JELYN PAREDES
JESSICA GAJETO
COST
Costs are always associated with its success.
A business firm would not be able to generate
sales without incurring any cost. Thus, business
tycoons also need to consider and analyze costs.
Fixed Costs
Expenses that does not change even though there is an increase
or decrease in the volume of goods produce.

Variable Costs
Expenses that vary with the volume of production output; they
rise as production increase and fall as production decrease.

Total Costs
Are the sum of variable and fixed costs.
OUTPUT FIXED COSTS VARIABLES COSTS TOTAL COSTS
1 1,500 400 1,900

2 1,500 700 2,200

3 1,500 1,100 2,600

4 1,500 1,700 3,200

5 1,500 2,700 4,200

6 1,500 4,500 6,000

 7000

6000

5000

4000
Price

3000

2000

1000

0
1 2 3 4 5 6

Fixed cost Variable cost Total cost

Quantity
Marginal Cost
marginal, in economic terms, means additional. Thus, the
concept of original cost to produce one more unit.

We compute the marginal cost of producing the 6th unit.

We get it by deducting the total cost of the 6th unit from
the 5th unit produced.

₱6,000 – ₱4,200 = ₱ 1,800

Marginal cost for adding the 6th unit ₱ 1,800

Average Cost
is the cost divided by the number of units produced.
Average fixed cost
is fixed cost divided by output. it drops as output rise because we
divide a larger denominator into a numerator that is constant.
  1,500, the average fixed cost
Supposed that fixed cost is still php
for unit is:
average Fixed cost = = 1,500

if the output would increase to 2, the AFC would be:

AFC== 750
if the output would increase to 2, the AFC would be:
 

AFC== 750

FIXED COST OUTPUT AVERAGE FIXED COST

1500 1 1500

1500 2 750

1500 3 500

1500 4 375

1500 5 300

1500 6 250
Average Variable Cost
is variable cost divided by output. As well all know variable costs increases as production increases.

average Fixed cost = = 400

 

Variable Cost Output Average Variable Cost

400 1 400

700 2 350

1,100 3 367

1,700 4 425

2,700 5 540

4,500 6 750
Average Total Costs
is the total cost divided by output. Like AVC, ATC
declines for a while but eventually it will begin to
rise.
TOTAL COST COST OUTPUT AVERAGE TOTAL COST

1,900 1 1,900

2,200 2 1,100

2,600 3 867

3,200 4 800

4,200 5 840

6,000 6 1,000
OUTPUT FIXED VARIABLE TOTAL AFC AVC ATC MARGINAL
COST COST COST COST
1 1,500 400 1,900 1,500 400 1,900

2 1,500 700 2,200 750 350 1,100 300

3 1,500 1,100 2,600 500 367 867 400

4 1,500 1,700 3,200 375 425 800 600

5 1,500 2,700 4,200 300 540 840 1,000

6 1,500 4,500 6,000 250 750 1,000 1,800

 2000

1800

1600

1400

1200
Cost

1000

800

600

400

200

0
1 2 3 4 5 6

AVC ATC MC

Quantity
Law of Diminishing Returns
an economic concept that states that if one variable factor of
production is increase while other factors are held constant, the
output per unit of the variable factor will eventually decline.
Economic scale
is the cost advantage that arises with added output of production. It arises because of the inverse relationship
between the quantity produce and per-unit fixed unit.

Diseconomies of scale
is an economic concept referring to a situation in which economies of scale no longer work for a business.
THANK YOU AND MABUHAY!!!