14 Cause of negative return a Poor co ordination between fixed factor and

14 cause of negative return a poor co ordination

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14. Cause of negative return: (a) Poor co-ordination between fixed factor and variable factor. (b) Over utilisation of fixed factor 15. Economic Cost : It is the sum total of explicit and implicit cost. 16. Explicit Cost : Actual money expenditure incurred by a firm on the purchase and hiring the factor inputs for the production is called explicit cost. These are entered into books of accounts. For example-payment of wages, rent, interest, purchases of raw materials etc. 17. Implicit cost is the cost of self owned resources of the production used in production process. Or estimated value of inputs supplied by owner itself. These are not entered into books of accounts. 18. Normal Profit : It is the minimum amount required to keep the producers into business. In other words, it is the minimum supply price of the entrepreneur. It is also called the wage off an entrepreneur. 19. 20. Total cost refers to total amount of money which is incurred by a firm on production of a given amount of a commodity. 21. Total cost is the sum of total fixed cost and total variable cost.TC = TFC + TVC or TC = AC × Q 22. Total fixed cost:- It is also called supplementary cost. It is the total expenditure incurred by the producer for employing fixed inputs. Ex- Rent of land and building, interest on capital,license fee etc.TFC = TC – TVC or TFC = AFC × Q
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23. Features of Total Fixed Cost:- (a) It remains constant at all levels of output. It is not zero even at zero output level. Therefore, TFC curve is parallel to X-axis . (b) Total cost at zero level of output is equal to total fixed cost. 24. 25. Total variable cost is the cost which vary with the quantity of output produced. It is zero at zero level of output. TVC curve is parallel to TC curve.Ex-cost of raw material,expenses on power etc.TVC = TC – TFC or TVC = AVC × Q 26. Features of Total variable cost:- (a) It is zero when output is zero. (b) It increases with increase in output. (c) Initially TVC increases at diminishing rate due to increasing returns and later it increases at an increasing rate due to diminishing return. 27. Average cost is per unit cost of production of a commodity. It is the sum of average fixed cost and average variable cost. 28. Average fixed cost is per unit fixed cost of production of a commodity. 29. Features of AFC:- (a) AFC diminishes with increase in output. (b) AFC curve is a rectangular hyperbola.(c) It can not intersect X-axis or Y-axis. 30. 31. Average variable cost is per unit variable cost of production of a commodity. AVC is U- shaped due to law of variable proportion.
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32. 33. Marginal Cost – It refers to change in TC, due to additional unit of a commodity is produced. MC = ΔTC/ΔQ or MCn = TCn – TCn–1. But under short run, it is calculated from TVC. 34. Relation Between Short-Term Costs 35. Total cost curve and total variable cost curve remains parallel to each other. The vertical distance between these two curve is equal to total fixed cost.
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