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    Cost & Revenue

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    Deepikaa Poobalaraja
    The document discusses cost, revenue, and profit concepts. It defines fixed, variable, explicit, and implicit costs. It explains how to calculate total, average, and marginal costs as well as total, average, and marginal revenue. It provides formulas for cost, revenue, and profit functions. Examples are given to demonstrate how to calculate total cost, total revenue, profit, and profit-maximizing output using cost and revenue equations. The marginal cost function for a cost equation is also derived.

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    Cost & Revenue

    Uploaded by

    Deepikaa Poobalaraja
    77 views13 pages
    The document discusses cost, revenue, and profit concepts. It defines fixed, variable, explicit, and implicit costs. It explains how to calculate total, average, and marginal costs as well as total, average, and marginal revenue. It provides formulas for cost, revenue, and profit functions. Examples are given to demonstrate how to calculate total cost, total revenue, profit, and profit-maximizing output using cost and revenue equations. The marginal cost function for a cost equation is also derived.

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    The document discusses cost, revenue, and profit concepts. It defines fixed, variable, explicit, and implicit costs. It explains how to calculate total, average, and marginal costs as well as total, average, and marginal revenue. It provides formulas for cost, revenue, and profit functions. Examples are given to demonstrate how to calculate total cost, total revenue, profit, and profit-maximizing output using cost and revenue equations. The marginal cost function for a cost equation is also derived.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    77 views13 pages

    Cost & Revenue

    Uploaded by

    Deepikaa Poobalaraja
    The document discusses cost, revenue, and profit concepts. It defines fixed, variable, explicit, and implicit costs. It explains how to calculate total, average, and marginal costs as well as total, average, and marginal revenue. It provides formulas for cost, revenue, and profit functions. Examples are given to demonstrate how to calculate total cost, total revenue, profit, and profit-maximizing output using cost and revenue equations. The marginal cost function for a cost equation is also derived.

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    You are on page 1of 13

    COST AND REVENUE

    Cost
    • Cost is defined as the money expenditure incurred by the producer to
    purchase (or hire) factors of production and raw materials to produce
    goods and services.
    Types of cost
    • (a) Fixed cost - fixed cost is defined as the expenditure, on hiring or
    purchasing of fixed factors/ inputs, which are compulsory and has
    nothing to do with the amount of production of the good or service
    • (b) Variable cost - variable cost is the expenditure on variable
    factors/inputs, such as labour, which can be changed.
    • (c) Explicit cost - Explicit cost is defined as the money expenditure
    incurred by the producer on both fixed and variable factors of
    production and raw materials etc
    • (d) Implicit cost - implicit cost is the cost of self supplied factors.
    TOTAL, AVERAGE & MARGINAL COST
    • Total Cost (TC) = Total Fixed Cost + Total Variable Cost
    • Cost Function C(x) = F +V𝒙
    • Average Cost (AC) = Total Cost/Total Output
    • Marginal cost (MC) = △TC/ △Q
    REVENUE
    • Revenue is defined as the amount a person receives by selling a
    certain quantity of the commodity
    • Revenue = Price of the Commodity × Quantity of the Commodity
    • Total Revenue = Price × Quantity or TR = P × Q
    • Revenue Function
    𝑹(𝒙) = 𝒑𝒙
    AVERAGE AND MARGINAL REVENUE
    • Average Revenue = Total Revenue/Quantity sold
    • AR = P × Q/Q = P
    • Average Revenue and Price of the commodity are one and the same.
    • MR = △TR/ △Q
    • Profit = Total Revenue – Total Cost
    • Profit is maximized when MR=MC
    • Assume that fixed costs is Rs. 850, variable cost per item is Rs. 45, and
    selling price per unit is Rs. 65. Write, i. Cost function
    • ii. Revenue function
    • iii. Profit function
    • I Cost Function = Variable cost + Fixed cost = 45𝒙 + 850

    • ii. Revenue function = 65𝒙

    • iii. Profit function = R(𝒙) – TC(𝒙) = 65𝒙 – (45𝒙+850) = 20𝒙 – 850


    • A company produces and sells a product and fixed costs of the
    company are Rs. 6,000 and variable cost is Rs. 25 per unit, and sells
    the product at Rs. 50 per unit.
    • i Find the total cost function.
    • ii Find the total revenue function.
    • iii Find the profit function, and determine the profit when 1000 units
    are sold.
    • iv How many units have to be produced and sold to yield a profit of
    Rs. 10,000?
    • TC=6000+25 𝒙
    • ii. TR= 50 𝒙
    • iii. P= 50 𝒙 -(6000+25 𝒙)=25 𝒙 -6000 P =25×1000-6000=19,000
    • iv. P =10,000
    10,000 = 25 𝒙 -6,000
    𝒙 = 16000/25 𝒙 = 640 units
    • Cost function of a company is 6 𝒙2 + 5 𝒙 +100. Calculate the marginal
    cost function.

    • If, Demand Function is D = 160- 0.0025x and Cost function is C = 15x +


    0.0025x2, Find the profit revenue-maximizing output level
    • R = D* 𝒙
    • Revenue Function = (160 – 0.0025 𝒙)* 𝒙 = 160 𝒙 – 0.0025 𝒙2 C
    • At the level of profit maximizing, MC = MR

    • MR = 160 – 2*0.0025 𝒙 = 160 – 0.005 𝒙


    • MC = 15 + 2*0.0025x
    • MR = MC
    • 160 – 0.005 𝒙 = 15 + 0.005 𝒙
    • 160 – 15 = 0.005 𝒙 + 0.005 𝒙
    • 0.01 𝒙 = 145
    • 𝒙 = 145/0.01
    • 𝒙 = 14,500 Units

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