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Utility bills are fixed costs. Types of production costs. Fixed and variable production costs

All types of costs of a company in the short term are divided into fixed and variable.

Fixed costs(FC - fixed cost) - such costs, the value of which remains constant when the volume of output changes. Fixed costs are constant at any level of production. The company must bear them even if it does not produce products.

Variable costs(VC - variable cost) - these are costs, the value of which changes when the volume of output changes. Variable costs increase as production volume increases.

Gross costs(TC - total cost) is the sum of fixed and variable costs. At zero level output, gross costs are equal to constants. As production volume increases, they increase in accordance with the increase in variable costs.

Examples should be given various types costs and explain their changes due to the law of diminishing returns.

The average costs of the company depend on the value of total constants, total variables and gross costs. Average costs are determined per unit of output. They are usually used for comparison with unit price.

In accordance with the structure of total costs, a company distinguishes between average fixed costs (AFC - average fixed cost), average variable costs (AVC - average variable cost), and average total costs (ATC - average total cost). They are defined as follows:

ATC = TC: Q = AFC + AVC

One important indicator is marginal cost. Marginal cost(MC - marginal cost) is the additional costs associated with the production of each additional unit of output. In other words, they characterize the change in gross costs caused by the release of each additional unit of output. In other words, they characterize the change in gross costs caused by the release of each additional unit of output. Marginal costs are defined as follows:

If ΔQ = 1, then MC = ΔTC = ΔVC.

The dynamics of the firm's total, average and marginal costs using hypothetical data are shown in Table.

Dynamics of total, marginal and average costs of a company in the short term

Volume of production, units. Q	Total costs, rub.			Marginal costs, rub. MS	Average costs, rub.
	constant FC	VC variables	gross vehicles		permanent AFC	AVC variables	gross ATS
1	2	3	4	5	6	7	8
0	100	0	100	—	—	—	—
1	100	50	150	50	100	50	150
2	100	85	185	35	50	42,5	92,5
3	100	110	210	25	33,3	36,7	70
4	100	127	227	17	25	31,8	56,8
5	100	140	240	13	20	28	48
6	100	152	252	12	16,7	25,3	42
7	100	165	265	13	14,3	23,6	37,9
8	100	181	281	16	12,5	22,6	35,1
9	100	201	301	20	11,1	22,3	33,4
10	100	226	326	25	10	22,6	32,6
11	100	257	357	31	9,1	23,4	32,5
12	100	303	403	46	8,3	25,3	33,6
13	100	370	470	67	7,7	28,5	36,2
14	100	460	560	90	7,1	32,9	40
15	100	580	680	120	6,7	38,6	45,3
16	100	750	850	170	6,3	46,8	53,1

Based on table Let's build graphs of fixed, variable and gross, as well as average and marginal costs.

The fixed cost graph FC is a horizontal line. Graphs of variable VC and gross vehicle costs have positive slope. In this case, the steepness of the VC and TC curves first decreases and then, as a result of the law of diminishing returns, increases.

AFC's average fixed cost schedule has negative slope. The curves for average variable costs AVC, average gross costs ATC and marginal costs MC have an arcuate shape, that is, they first decrease, reach a minimum, and then take on an upward appearance.

Attracts attention dependence between graphs of average variablesAVCand marginal MC costs, and also between the curves of average gross ATC and marginal MC costs. As can be seen in the figure, the MC curve intersects the AVC and ATC curves at their minimum points. This is because as long as the marginal, or incremental, cost associated with producing each additional unit of output is less than the average variable or average gross cost that existed before the production of that unit, average costs decrease. However, when the marginal cost of a particular unit of output exceeds the average cost before it was produced, average variable costs and average gross costs begin to increase. Consequently, equality of marginal costs with average variable and average gross costs (the point of intersection of the MC schedule with the AVC and ATC curves) is achieved at the minimum value of the latter.

Between marginal productivity and marginal cost there is a reverse addiction. As long as the marginal productivity of a variable resource increases and the law of diminishing returns does not apply, marginal cost decreases. When marginal productivity is at its maximum, marginal cost is at its minimum. Then, as the law of diminishing returns takes effect and marginal productivity declines, marginal cost increases. Thus, the marginal cost curve MC is mirror image MP marginal productivity curve. A similar relationship also exists between the graphs of average productivity and average variable costs.

There are a large number of ways in which a company makes a profit, and the important thing is the fact of costs. Costs represent the actual expenses that a company incurs in its operation. If a company is unable to pay attention to cost categories, then the situation may become unpredictable and profit margins may decrease.

Fixed production costs must be analyzed when constructing their classification, with the help of which you can determine an idea of ​​their properties and main characteristics. The main classification of production costs includes fixed, variable, and total costs.

Fixed production costs

Fixed production costs are an element of the break-even point model. They are costs regardless of the volume of output and are opposed to variable costs. When combined, fixed and variable costs represent the total costs of the business. Fixed costs can be composed of several elements:

1. premises rental,
2. deductions for depreciation,
3. management and administrative personnel costs,
4. cost of machinery, equipment and equipment,
5. security of production premises,
6. payment of interest on bank loans.

Fixed costs are represented by the costs of enterprises, which are constant in short periods and do not depend on changes in production volumes. This type of cost must be paid even if the enterprise does not produce anything.

Average fixed costs

Average fixed costs can be obtained by calculating the ratio of fixed costs and output volume. Thus, average fixed costs represent the constant cost of producing products. In total, fixed costs do not depend on production volumes. For this reason, average fixed costs will tend to decrease as the number of products produced increases. This is due to the fact that when production volumes increase, the amount of fixed costs is distributed over more products.

Features of fixed costs

Fixed costs in the short term do not change in accordance with changes in production volume. Fixed costs are sometimes called sunk costs or overhead. Fixed costs include the costs of maintaining buildings, areas, and purchasing equipment. The fixed cost category is used in several formulas.

Thus, when determining total costs (TC), a combination of fixed and variable costs is necessary. Total costs are calculated using the formula:

This type of cost increases with increasing production volumes. There is also a formula for determining total fixed costs, which are calculated by dividing fixed costs by a certain volume of products produced. The formula looks like this:

Average fixed costs are used to calculate average total costs. Average total costs are found through the sum of average fixed and variable costs using the formula:

Short-term fixed costs

Living and past labor is expended in the production of products. In this case, each enterprise strives to obtain the greatest profit from its operation. In this case, each enterprise can take two paths - sell products at a higher price or reduce their costs for producing products.

In accordance with the time spent on changing the amount of resources used in production processes, it is customary to distinguish between long-term and short-term periods of enterprise activity. The short-term interval is a time period during which the size of the enterprise, its output and costs change. At this time, a change in the volume of products occurs through a change in the volume of variable costs. In short periods, an enterprise can quickly change only variable factors, including raw materials, labor, fuel, auxiliary materials. The short-term period divides costs into fixed and variable. During such periods, fixed costs are mainly provided, determined by fixed costs.

Fixed production costs receive their name in accordance with their unchanging nature and independence in relation to production volume.

Short term is a period of time during which some factors of production are constant and others are variable.

Fixed factors include fixed assets and the number of firms operating in the industry. During this period, the company has the opportunity to vary only the degree of utilization of production capacity.

Long term is a period of time during which all factors are variable. In the long term, a company has the opportunity to change the overall size of buildings, structures, the amount of equipment, and the industry - the number of firms operating in it.

Fixed costs (FC) - these are costs, the value of which in the short term does not change with an increase or decrease in production volume.

Fixed costs include costs associated with the use of buildings and structures, machinery and production equipment, rent, major repairs, as well as administrative expenses.

Because As production volume increases, total revenue increases, then average fixed costs (AFC) represent a decreasing value.

Variable costs (VC) - these are costs, the value of which changes depending on the increase or decrease in production volume.

Variable costs include the cost of raw materials, electricity, auxiliary materials, and labor.

Average variable costs (AVC) are:

Total costs (TC) – a set of fixed and variable costs of the company.

Total costs are a function of output produced:

TC = f (Q), TC = FC + VC.

Graphically, total costs are obtained by summing the curves of fixed and variable costs (Fig. 6.1).

Average total cost is: ATC = TC/Q or AFC +AVC = (FC + VC)/Q.

Graphically, ATC can be obtained by summing the AFC and AVC curves.

Marginal Cost (MC) is the increase in total costs caused by an infinitesimal increase in production. Marginal cost usually refers to the cost associated with producing an additional unit of output.

20. Long-run production costs

The main feature of costs in the long run is the fact that they are all variable in nature - the firm can increase or reduce capacity, and it also has enough time to decide to leave a given market or enter it by moving from another industry. Therefore, in the long run, average fixed and average variable costs are not distinguished, but average costs per unit of production (LATC) are analyzed, which in essence are also average variable costs.

To illustrate the situation with costs in the long run, consider a conditional example. Some enterprise expanded over a fairly long period of time, increasing its production volumes. The process of expanding the scale of activity will be conditionally divided into three short-term stages within the analyzed long-term period, each of which corresponds to different enterprise sizes and volumes of output. For each of the three short-term periods, short-term average cost curves can be constructed for different enterprise sizes - ATC 1, ATC 2 and ATC 3. The general average cost curve for any volume of production will be a line consisting of the outer parts of all three parabolas - graphs of short-term average costs.

In the example considered, we used a situation with a 3-stage expansion of the enterprise. A similar situation can be assumed not for 3, but for 10, 50, 100, etc. short-term periods within a given long-term period. Moreover, for each of them you can draw the corresponding ATS graphs. That is, we will actually get a lot of parabolas, a large set of which will lead to the alignment of the outer line of the average cost graph, and it will turn into a smooth curve - LATC. Thus, long-run average cost (LATC) curve represents a curve that envelops an infinite number of short-term average production cost curves that touch it at their minimum points. The long-run average cost curve shows the lowest cost per unit of production at which any level of output can be achieved, provided that the firm has time to change all factors of production.

In the long run there are also marginal costs. Long Run Marginal Cost (LMC) show the change in the total amount of costs of the enterprise in connection with a change in the volume of output of finished products by one unit in the case when the company is free to change all types of costs.

The long-run average and marginal cost curves relate to each other in the same way as the short-run cost curves: if LMC lies below LATC, then LATC falls, and if LMC lies above laTC, then laTC rises. The rising portion of the LMC curve intersects the LATC curve at the minimum point.

There are three segments on the LATC curve. In the first of them, long-term average costs are reduced, in the third, on the contrary, they increase. It is also possible that there will be an intermediate segment on the LATC chart with approximately the same level of costs per unit of output for different values ​​of output volume - Q x. The arcuate nature of the long-term average cost curve (the presence of decreasing and increasing sections) can be explained using patterns called positive and negative effects of increased scale of production or simply scale effects.

The positive effect of production scale (the effect of mass production, economies of scale, increasing returns to scale of production) is associated with a decrease in costs per unit of production as production volumes increase. Increasing returns to scale of production (positive economies of scale) occurs in a situation where output (Q x) grows faster than costs rise, and therefore the enterprise's LATC falls. The existence of a positive effect of production scale explains the descending nature of the LATS graph in the first segment. This is explained by the expansion of the scale of activity, which entails:

1. Increased labor specialization. Labor specialization presupposes that diverse production responsibilities are divided among different workers. Instead of carrying out several different production operations at the same time, which would be the case with a small-scale enterprise, in conditions of mass production each worker can limit himself to one single function. This results in an increase in labor productivity and, consequently, a reduction in costs per unit of production.

2. Increased specialization of managerial work. As the size of the enterprise grows, the opportunity to take advantage of specialization in management increases, when each manager can focus on one task and perform it more efficiently. This ultimately increases the efficiency of the enterprise and entails a reduction in costs per unit of production.

3. Efficient use of capital (means of production). The most efficient equipment from a technological point of view is sold in the form of large, expensive kits and requires large production volumes. The use of this equipment by large manufacturers allows them to reduce costs per unit of production. Such equipment is not available to small firms due to low production volumes.

4. Savings from using secondary resources. A large enterprise has more opportunities to produce by-products than a small company. A large firm thus makes more efficient use of the resources involved in production. Hence the lower costs per unit of production.

The positive effect of scale of production in the long run is not unlimited. Over time, the expansion of an enterprise can lead to negative economic consequences, causing a negative effect of scale of production, when the expansion of the volume of a company's activities is associated with an increase in production costs per unit of output. Diseconomies of scale occurs when production costs rise faster than production volume and, therefore, LATC rises as output increases. Over time, an expanding company may encounter negative economic facts caused by the complication of the enterprise management structure - the management floors separating the administrative apparatus and the production process itself are multiplying, top management turns out to be significantly removed from production process at the enterprise. Problems arise related to the exchange and transmission of information, poor coordination of decisions, and bureaucratic red tape. The efficiency of interaction between individual divisions of the company decreases, management flexibility is lost, control over the implementation of decisions made by the company's management becomes more complicated and difficult. As a result, the operating efficiency of the enterprise decreases and average production costs increase. Therefore, when planning its production activities, a company needs to determine the limits of expanding the scale of production.

In practice, cases are possible when the LATC curve is parallel to the x-axis at a certain interval - on the graph of long-term average costs there is an intermediate segment with approximately the same level of costs per unit of output for different values ​​of Q x. Here we are dealing with constant returns to scale of production. Constant returns to scale occurs when costs and output grow at the same rate and, therefore, LATC remains constant at all output levels.

The appearance of the long-term cost curve allows us to draw some conclusions about the optimal enterprise size for different sectors of the economy. Minimum effective scale (size) of an enterprise- the level of output from which the effect of savings due to an increase in the scale of production ceases. In other words, we are talking about such values ​​of Q x at which the company achieves the lowest costs per unit of production. The level of long-term average costs determined by the effect of economies of scale affects the formation of the effective size of the enterprise, which, in turn, affects the structure of the industry. To understand, consider the following three cases.

1. The long-term average cost curve has a long intermediate segment, for which the LATC value corresponds to a certain constant (Figure a). This situation is characterized by a situation where enterprises with production volumes from Q A to Q B have the same cost. This is typical for industries that include enterprises of different sizes, and the level of average production costs for them will be the same. Examples of such industries: wood processing, forestry, food production, clothing, furniture, textiles, petrochemical products.

2. The LATC curve has a fairly long first (descending) segment, in which there is a positive effect of scale in production (Figure b). The minimum cost is achieved with large production volumes (Q c). If the technological features of the production of certain goods give rise to a long-term average cost curve of the described form, then large enterprises will be present in the market for these goods. This is typical, first of all, for capital-intensive industries - metallurgy, mechanical engineering, automotive industry, etc. Significant economies of scale are also observed in the production of standardized products - beer, confectionery etc.

3. The falling segment of the long-term average costs graph is very insignificant; the negative effect of scale of production quickly begins to work (Figure c). In this situation, the optimal production volume (Q D) is achieved with a small volume of output. If there is a large-capacity market, we can assume the possibility of the existence of many small enterprises producing this type of product. This situation is typical for many sectors of the light and food industries. Here we are talking about non-capital-intensive industries - many types retail, farms, etc.

§ 4. MINIMIZATION OF COSTS: CHOICE OF PRODUCTION FACTORS

At the long-term stage, if production capacity is increased, each firm faces the problem of a new ratio of production factors. The essence of this problem is to ensure a predetermined volume of production at minimal cost. To study this procedure, let us assume that there are only two factors of production: capital K and labor L. It is not difficult to understand that the price of labor determined in competitive markets is equal to the wage rate w. The price of capital is equal to the rental price for equipment r. To simplify the study, we assume that all equipment (capital) is not purchased by the company, but is rented, for example, through a leasing system, and that the prices for capital and labor remain constant within a given period. Production costs can be presented in the form of so-called “isocosts”. They mean everything possible combinations labor and capital, which have the same total cost, or, what is the same, a combination of factors of production with equal gross costs. Gross costs are determined by the formula: TC = w + rK. This equation can be expressed as an isocost (Figure 7.5). Rice. 7.5. The quantity of output as a function of minimum production costs. The firm cannot choose the isocost C0, since there is no combination of factors that would ensure the output of products Q at their cost equal to C0. A given volume of production can be achieved at costs equal to C2, when labor and capital costs are respectively equal to L2 and K2 or L3 and K3. But in this case, the costs will not be minimal, which does not meet the goal. The solution at point N will be significantly more effective, since in this case the set of production factors will ensure the minimization of production costs. The above is true provided that the prices of factors of production are constant. In practice this does not happen. Let's assume that the price of capital increases. Then the slope of the isocost, equal to w/r, will decrease, and the C1 curve will become flatter. Minimization of costs in this case will take place at point M with values ​​L4 and K4. As the price of capital increases, the firm substitutes labor for capital. The marginal rate of technological substitution is the amount by which capital costs can be reduced by using an additional unit of labor while maintaining a constant volume of production. The rate of technological substitution is designated MPTS. In economic theory it has been proven that it is equal to the slope of the isoquant with the opposite sign. Then MPTS = ?K / ?L = MPL / MPk. Through simple transformations we obtain: MPL / w = MPK / r, where MP is the marginal product of capital or labor. From the last equation it follows that at minimum costs, each additional ruble spent on production factors produces an equal amount of output. It follows that under the above conditions, a firm can choose between factors of production and buy a cheaper factor, which will correspond to a certain structure of factors of production

Selecting factors of production that minimize production

Let's start by considering the fundamental problem that all firms face: how to choose the combination of factors to achieve a certain level of output at minimum cost. To simplify, let's take two variable factors: labor (measured in hours of work) and capital (measured in hours of use of machinery and equipment). We start from the assumption that both labor and capital can be hired or rented at competitive markets. The price of labor is equal to the wage rate w, and the price of capital is equal to the rent for equipment r. We assume that capital is "rented" rather than purchased, and can therefore base all business decisions on comparative basis. Since labor and capital are attracted competitively, we assume the price of these factors to be constant. We can then focus on the optimal combination of factors of production without worrying that large purchases will cause a jump in the prices of the factors of production used.

22 Determining Price and Output in a Competitive Industry and in a Pure Monopoly Pure monopoly promotes inequality in the distribution of income in society as a result of monopoly market power and charging higher prices at the same costs than in pure competition, which allows for monopoly profits. In conditions of market power, it is possible for a monopolist to use price discrimination, when different prices are set for different buyers. Many of the purely monopolistic firms are natural monopolies, which are subject to mandatory government regulation in accordance with antitrust laws. To study the case of a regulated monopoly, we use graphs of demand, marginal revenue and costs of a natural monopoly, which operates in an industry where positive economies of scale occur at all output volumes. The higher the firm's output, the lower its average ATC costs. Due to this change in average costs, the marginal costs of MC for all volumes of production will be lower than average costs. This is explained by the fact that, as we have established, the marginal cost graph intersects the average cost graph at the minimum point of the ATC, which is absent in this case. We show the determination of the optimal volume of production by a monopolist and possible methods of regulating it in Fig. Price, marginal revenue (marginal income) and costs of a regulated monopoly As can be seen from the graphs, if this natural monopoly were unregulated, then the monopolist, in accordance with the rule MR = MC and the demand curve for its products, chose the quantity of products Qm and the price Pm, which allowed I wish he could get the maximum gross profit. However, the price Pm would exceed the socially optimal price. The socially optimal price is the price that ensures the most efficient allocation of resources in society. As we established earlier in topic 4, it must correspond to marginal cost (P = MC). In Fig. this is the price Po at the intersection point of the demand schedule D and the marginal cost curve MC (point O). The production volume at this price is Qо. However, if government agencies fixed the price at the level of the socially optimal price Po, this would lead the monopolist to losses, since the price Po does not cover the average gross costs of the vehicle. To solve this problem, the following main options for regulating a monopolist are possible: Allocation of state subsidies from the budget of the monopoly industry to cover the gross loss in the case of establishing a fixed price at the socially optimal level. Granting the monopoly industry the right to conduct price discrimination in order to obtain additional income from more solvent consumers to cover the monopolist's losses. Setting the regulated price at a level that ensures normal profits. In this case, the price is equal to the average gross cost. In the figure, this is the price Pn at the intersection point of the demand schedule D and the average gross cost curve of the ATC. The output at the regulated price Pn is equal to Qn. The price Pn allows the monopolist to recover all economic costs, including normal profit.

23. This principle is based on two main points. First, the firm must decide whether it will produce the product. It should be produced if the company can make either a profit or a loss that is less than fixed costs. Secondly, you need to decide how much of the product should be produced. This production volume must either maximize profits or minimize losses. This technique uses formulas (1.1) and (1.2). Next, you should produce such a volume of production Qj that maximizes profit R, i.e.: R(Q) ^max. The analytical determination of the optimal production volume is as follows: R, (Qj) = PMj Qj - (TFCj + UVCj QY). Let us equate the partial derivative with respect to Qj to zero: dR, (Q,) = 0 dQ, " (1.3) РМг - UVCj Y Qj-1 = 0. where Y is the coefficient of change in variable costs. The value of gross variable costs changes depending on the change in volume production. The increase in the amount of variable costs associated with an increase in production volume by one unit is not constant. It is assumed that variable costs increase at an increasing rate. This is due to the fact that constant resources are fixed, and in the process of production growth, variable resources increase. marginal productivity falls and, therefore, variable costs increase at an increasing pace. “To calculate variable costs, it is proposed to apply a formula, and based on the results of statistical analysis, it has been established that the coefficient of change in variable costs (Y) is limited to the interval 1.< Y < 1,5" . При Y = 1 переменные издержки растут линейно: TVCг = UVCjQY, г = ЇЯ (1.4) где TVCг - переменные издержки на производство продукции i-го вида. Из (1.3) получаем оптимальный объем производства товара i-го вида: 1 f РМг } Y-1 QOPt = v UVCjY , После этого сравнивается объем Qг с максимально возможным объемом производства Qjmax: Если Qг < Qjmax, то базовая цена Рг = РМг. Если Qг >Qjmax, then, if there is a production volume Qg at which: Rj(Qj) > 0, then Рg = PMh Rj(Qj)< 0, то возможны два варианта: отказ от производства i-го товара; установление Рг >RMg. The difference between this method and approach 1.2 is that here the optimal sales volume is determined at a given price. It is then also compared to the maximum "market" sales volume. The disadvantage of this method is the same as that of 1.2 - it does not take into account the entire possible composition of the enterprise’s products in conjunction with its technological capabilities.

The entrepreneur, which he must bear in any case and which do not depend on the volume of products produced.

There will be fixed costs even if the volume of output is zero.

Elements that make up fixed costs:

Rent for premises.
- .
- Administrative and management expenses.
- Cost and maintenance of equipment.
- Cost of lighting and heating of industrial premises.
- Security of industrial premises.
- Payment of interest on the loan.

Average fixed costs

Fixed costs are the costs of the manufacturer, which in the short term remain unchanged regardless of changes in the volume of production. Fixed costs are associated with the very existence of the firm's production equipment and must therefore be paid even if the firm produces nothing. Fixed costs, as a rule, include payment of obligations on bonded loans, rental payments, part of the deductions for buildings and equipment, insurance premiums, as well as salaries to senior management personnel and future specialists of the company.

The ratio of fixed costs to output is called average fixed costs. Average fixed costs are the fixed costs of producing a unit of output.

Since the amount of fixed costs is, by definition, independent of the volume of production, average fixed costs will fall as the quantity produced increases. As production volume increases, this amount of fixed costs is distributed over more and more products.

Fixed production costs

Fixed costs (FC) are costs whose value in the short run does not change depending on changes in production volume. These are sometimes called " " or "sunk costs". Fixed costs include maintenance costs industrial buildings, purchase of equipment, rental payments, interest payments on debts, salaries of management personnel, etc.

All these expenses must be financed even when the company produces nothing.

Purchase costs consumed in the process of producing certain goods.

Any production of goods and services, as is known, is associated with the use of labor, capital and natural resources, which represent , the cost of which is determined by production costs.

Due to limited resources, the problem arises of how best to use them among all rejected alternatives.

These are the costs of producing goods, determined by the cost of the best lost opportunity to use production resources, ensuring maximum profit. The opportunity costs of a business are called economic costs. These costs must be distinguished from accounting costs.

Accounting costs differ from economic costs in that they do not include the cost of factors of production that are owned by the owners of firms. Accounting costs are less than economic costs by the amount of implicit earnings of the entrepreneur, his wife, implicit land and implicit interest on the owner of the company. In other words, accounting costs are equal to economic costs minus all implicit costs.

The options for classifying production costs are varied. Let's start by distinguishing between explicit and implicit costs.

Explicit costs are opportunity cost, taking the form of cash payments to the owners of production resources and semi-finished products. They are determined by the amount of company expenses to pay for purchased resources (raw materials, materials, fuel, labor, etc.).

Implicit (imputed) costs are the opportunity costs of using resources that belong to the firm and take the form of lost income from the use of resources that are the property of the firm. They are determined by the cost of resources owned by a given company.

The classification of production costs can be carried out taking into account the mobility of production factors. Fixed, variable and total costs are distinguished.

Fixed costs (FC) are costs whose value in the short run does not change depending on changes in production volume. These are sometimes called "overhead" or "sunk costs". Fixed costs include the cost of maintaining production buildings, purchasing equipment, rental payments, interest payments on debts, salaries of management personnel, etc. All these costs must be financed even when the company does not produce anything.

(VC) - costs, the value of which changes depending on changes in production volume. If products are not produced, then they are equal to zero. Variable costs include the cost of purchasing raw materials, fuel, energy, transportation services, workers and employees, etc. In supermarkets, payment for the services of supervisors is included in variable costs, since managers can adjust the volume of these services to the number of customers.

Total costs (TC) - the total costs of the company, equal to the amount its fixed and variable costs are determined by the formula:

TC = FC + VC.

Total costs increase as production volume increases.

Costs per unit of goods produced take the form of average fixed costs, average variable costs and average total costs.

Average fixed cost (AFC) is the total fixed cost per unit of output.

They are determined by dividing fixed costs (FC) by the corresponding quantity (volume) of products produced:

Since total fixed costs do not change, when divided by increasing production volume, average fixed costs will fall as the quantity of output increases, because a fixed amount of costs is distributed over more and more units of output. And, conversely, as production volume decreases, average fixed costs will increase.

Average variable cost (AVC) is the total variable cost per unit of output.

They are determined by dividing variable costs by the corresponding quantity of output:

Average variable costs first fall, reaching their minimum, then begin to rise.

Average (total) costs (ATC) are the total production costs per unit of output.

They are defined in two ways:

A) by dividing the sum of total costs by the number of products produced:

B) by summing average fixed costs and average variable costs:

ATC = AFC + AVC.

At the beginning, average (total) costs are high because the volume of output is small and fixed costs are high. As production volume increases, average (total) costs decrease and reach a minimum, and then begin to rise.

Marginal cost (MC) is the cost associated with producing an additional unit of output.

Marginal costs are equal to the change in total costs divided by the change in volume produced, that is, they reflect the change in costs depending on the quantity of output. Since fixed costs do not change, fixed marginal costs are always zero, i.e. MFC = 0. Therefore, marginal costs are always marginal variable costs, i.e. MVC = MC. It follows from this that increasing returns to variable factors reduce marginal costs, while decreasing returns, on the contrary, increase them.

Marginal costs show the amount of costs that a firm will incur when increasing production by the last unit of output, or the amount of money that it will save if production decreases by a given unit. When the additional cost of producing each additional unit of output is less than the average cost of the units already produced, producing that next unit will lower the average total cost. If the cost of the next additional unit is higher than average cost, its production will increase average total cost. The above applies to a short period.

In practice Russian enterprises and in statistics the concept of “cost” is used, which is understood as the monetary expression of the current costs of production and sales of products. The costs included in the cost include costs for materials, overhead, wages, depreciation, etc. The following types of cost are distinguished: basic - the cost of the previous period; individual - the amount of costs for the manufacture of a specific type of product; transportation - costs of transporting goods (products); products sold, current - assessment of sold products at restored cost; technological - the amount of costs for the organization technological process manufacturing products and providing services; actual - based on actual costs for all cost items for a given period.

Total fixed costs

This topic is devoted to the consideration of the interdependencies between costs and production volume. At first glance, this task does not present any particular difficulties: production requires costs, costs cost money. However, a more detailed examination of the production process reveals that the concept of economic costs is much more complex than a simple calculation of monetary costs corresponding to a certain volume of production. When considering the issue, it is assumed that the firm is not only able to calculate its own costs corresponding to any volume of output, but also to choose the best, or at least the least expensive, method of producing a given volume of output. So, if for the production of 10 units. products should be spent 50 rubles, then it is assumed that these 10 units. outputs are produced using the lowest-cost combination of factors of production.

Thus, to determine optimal ratio“costs output”, it is necessary to take into account:

1) the nature of the production function;
2) prices of production factors;
3) the principle of minimizing costs.

First of all, it is important to distinguish between fixed costs (which are not related to the amount of output) and variable costs.

Fixed (total, total fixed) costs (TFC, or FC, - total fixed costs): part of total costs that does not depend on changes in output.

Variable (total, total variable) costs (TVC, or VC, - total variable costs): part of the total costs that increases with increasing output volume.

Total (total) costs (TC or C, - total costs): a set of fixed and variable costs.

Thus we can represent the first equation:

TC = TFC + TVC

Fixed costs include costs associated with the use of buildings, structures, machinery, production equipment, rent, major repairs, administrative expenses, etc.

The fixed costs graph is a straight line parallel to the x-axis. She illustrates important property fixed costs (FC): independence from the volume of output (Q).

As for the variable cost (VC) schedule, its construction requires additional effort and will be discussed a little later.

When studying the nature of costs, difficulties arise that are associated with the fact that the company is only a primary link, a cell in. If an economic system is functioning efficiently, it must provide adequate price signals to the firm. Prices should clearly reflect production costs. Otherwise, the company will be deprived of the opportunity to correctly and efficiently allocate its resources. Therefore, the nature of costs should begin to be explored by clarifying the differences between opportunity costs and accounting costs, as well as between public and private costs.

Fixed costs in the short term

In the process of producing goods and services, living and past labor is expended. At the same time, each company strives to obtain possibly greater profits from its activities. To do this, each company has two ways: try to sell its goods at the highest possible price or try to reduce its production costs, i.e. production costs.

Depending on the time spent on changing the amount of resources used in production, short-term and long-term periods in the company’s activities are distinguished.

Short-term is a time interval during which it is impossible to change the size of the production enterprise owned by the company, i.e. the amount of fixed costs incurred by this firm. Over a short-term time interval, changes in production volumes can result solely from changes in the volume of variable costs. It can influence the progress and effectiveness of production only by changing the intensity of use of its capacities.

During this period, the company can quickly change its variable factors - the amount of labor, raw materials, auxiliary materials, fuel.

In the short run, the quantity of some production factors remains unchanged, while the quantity of others changes. Costs in this period are divided into fixed and variable.

This is due to the fact that the provision of fixed costs determines fixed costs.

Fixed costs get their name due to their nature of immutability and independence from changes in production volume.

However, they are classified as ongoing costs because their burden falls on the firm every day if it continues to rent or own the production facilities it needs to continue production activities. When these current costs take the form of periodic payments, they are classified as explicit monetary fixed costs. If they reflect the opportunity costs associated with owning certain production facilities acquired by the firm, they are implicit costs.

Fixed costs include:

1) labor costs for management personnel;
2) rent payments;
3) insurance premiums;
4) deductions for depreciation of buildings and equipment.

Fixed cost formula

Fixed costs are calculated “after the fact”, i.e. these are those costs that exist at zero production volume, do not depend on production volume and do not change in the short term (administration fees, rent of premises and/or equipment, etc.). There are NO fixed costs in the long run - everything can change over time.

Various classifications of production costs are possible. First of all, it is necessary to distinguish between explicit and implicit costs.

Explicit costs (external or accounting) are cash payments to the owners of production resources and semi-finished products.

Implicit (internal) costs are lost alternative uses resources owned by the firm, taking the form of lost income.

Costs can also be classified depending on the volume of production. In the short term, some costs are constant, others are variable.

Fixed costs (FC) are costs that do not depend on the volume of output. These include the costs of maintaining buildings, major renovation, administrative and management expenses, rent, some types of taxes.

Average fixed costs are calculated using the formula AFC = FC / Q.

Variable costs (VC) are costs whose value changes depending on changes in production volumes. Variable costs include costs of raw materials, supplies, electricity, labor costs, and costs of auxiliary materials.

Variable costs increase or decrease in proportion to output. At the initial stages of production, they grow at a faster rate than the output produced, but as optimal output is achieved, the growth rate of variable costs decreases, as the effect of scale of production operates. 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.

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).

Average variable costs (AVC) are determined by the formula AVC=VC/Q.

Total costs (TC) are the sum of the firm’s fixed and variable costs TC = FC + VC.

Average total costs are determined by the formula ATC = AFC + AVC.

Marginal cost (MC) is the cost associated with producing an additional unit of output. The category of marginal costs is of strategic importance because it allows you to show the costs that a company will have to incur if it produces one more unit of output or save if it reduces production by this unit. In other words, marginal cost is an amount that a firm can directly control. Marginal cost (MC) is obtained as the difference between the total cost of producing (n + 1) units and the cost of producing (n) units of the product.

Let us comment on the basic relationships between average and marginal costs:

1) marginal costs (MC) do not depend on fixed costs (FC), since the latter do not depend on the volume of production, and MC is incremental costs;
2) while marginal costs are less than average (MC 3) when marginal costs are equal to average (MC = AC), this means that average costs have stopped decreasing, but have not yet begun to grow. This is the point of minimum average cost (AC=min);
4) when marginal costs become greater than average costs (MC > AC), the average cost curve goes up, indicating an increase in average costs as a result of the production of an additional unit of output;
5) the MC curve intersects the average variable costs (AVC) and average costs (AC) curves 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. In our economy, methods based on the cost category, which includes the total costs of production and sales of products, have been widely used. 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 production as a whole. Based on the previously introduced concepts of costs (expenses), it is possible to determine added value, which is obtained by subtracting from total income or

Fixed and variable costs are the costs that a company incurs to produce goods, work or services. Cost planning allows you to more efficiently use available resources, as well as predict future activities. Analysis - find the most costly expense items and save on the production of goods.

What are costs

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Variable costs change depending on changes in production volumes. As the quantity of products produced increases, variable costs will also increase and, conversely, as the quantity of products produced decreases, variable costs will also decrease.

The variable cost schedule has next view- rice. 2.

Figure 2. Variable cost schedule

On initial stage the growth of variable costs is directly related to the increase in the number of units of output. Gradually growing variable expenses slows down due to cost savings during mass production.

General costs

Together, fixed and variable production costs, when added, represent total costs (TC – total costs). This is the sum of all expenses, both fixed and variable, that an organization spends to produce goods or provide services. Total costs are a variable value and depend on the number of products produced (production volumes) and the cost of resources spent on production.

Graphically, total costs (TC) look like this - Fig. 3.

Figure 3. Graph of fixed, variable and total costs

An example of calculating fixed and variable costs

The company OJSC "Sewing Master" is engaged in sewing and selling clothes wholesale and retail. At the beginning of the year, the organization won the tender and entered into a long-term contract for a period of 1 year - a large order for the production of protective clothing for medical workers in the amount of 5,000 units per year.

The organization incurred the following costs during the year (see table).

Table. Company costs

Type of costs	Amount, rub.
Rent of a sewing workshop	50,000 rub. per month
Depreciation charges according to accounting data	48,000 rub. per year
Interest on a loan for the purchase of sewing equipment and necessary materials(fabrics, threads, sewing accessories, etc.)	84,000 rub. per year
Utility costs for electricity, water supply	18,500 rub. per month
Cost of materials for sewing workwear (fabrics, threads, buttons and other accessories)
Remuneration of workers (workshop staff amounted to 12 people) with an average salary of 30,000 rubles.	360,000 rub. per month
Remuneration of administrative staff (3 people) with average wages 45,000 rub.	135,000 rub. per month
Cost of sewing equipment

Fixed costs include:

• rent for a sewing workshop;
• depreciation charges;
• payment of interest on a loan for the purchase of equipment;
• the cost of the sewing equipment itself;
• administration salaries.

Calculation of fixed costs:

FC = 50,000 * 12 + 48,000 + 84,000 + 500,000 = 1,232,000 rubles per year.

Let's calculate average fixed costs:

Variable costs include the cost of raw materials and materials, wages for workers in the sewing workshop and payment for utility costs.

VC = 200,000 + 360,000 + 18,500 * 12 = 782,000 rubles.

Let's calculate average variable costs

We obtain the total costs for the production of all products by summing up the fixed and variable costs:

TC = 1232000 + 782000 = 20,140,00 rubles.

Average total costs are calculated using the formula:

Results

Bearing in mind that the organization has just started its sewing production (rents a workshop, purchases sewing equipment on credit, etc.), the amount of fixed costs at the initial stage of production will be quite significant. The fact that the volume of production is still low - 5,000 units - also plays a role. Therefore, fixed costs still prevail over variable ones.

As production volumes increase, fixed costs will remain unchanged, but variable costs will increase.

Analysis and planning

Planning costs (both fixed and variable) allows the organization to rationally and more efficiently use available resources, as well as predict its activities for the future (applies to short term). Analysis is also necessary in order to determine where the most costly items of expenditure are and how savings can be made on the production of goods.

Saving on fixed and variable costs reduces the cost of production - the organization can set more low price than before, which increases the competitiveness of products on the market and increases attractiveness in the eyes of consumers (