Page 52 - VIRANSH COACHING CLASSES

In figure 4.9, quantity supplied is shown on machinery etc.
the X axis and price on the Y axis. Supply falls Total Variable Cost (TVC) : Total variable
from OQ to OQ at the same price OP, resulting costs are those expenses of production
2
in an inward shift of the original supply curve to which are incurred on variable factors such
the left from SS to S S . It is known as Decrease as labour, raw material, power, fuel etc.
2 2
in supply. 2) Average Cost (AC) : Average cost refers to

cost of production per unit. It is calculated
You should know :
by dividing total cost by total quantity of
1) Supply : Supply is a micro-economic production.
concept. Supply refers to quantity of a AC = TC
commodity that a seller is willing and able TQ
to offer for sale at a particular price, during AC = Average cost
a certain period of time. TC = Total cost

2) Aggregate supply : It is a macro-economic TQ = Total quantity
concept. It refers to the minimum amount of For example, If the total cost of production
sales proceeds which entrepreneurs expect of 40 units of commodity is ` 800 then the
to receive from the sale of output at a given average cost is :
level of employment. AC = TC
TQ
Concepts of Cost and Revenue : 800
=
A) Cost Concepts : 40
When an entrepreneur undertakes an act = ` 20 per unit
of production, he has to use various inputs like 3) Marginal cost (MC) : Marginal cost is the
raw material, labour, capital etc. He has to net addition made to total cost by producing
make payments for such inputs. The expenditure one more unit of output.
incurred on these inputs is known as the cost of MCn = TC – TC
n-1
n
production. Cost of production increases with an n = Number of units produced
increase in need of output. There are three types th
of costs which are as follows : MC = Marginal cost of the n unit
n
TC = Total cost of n unit
th
1) Total Cost (TC) : Total cost is the total n
expenditure incurred by a firm on the factors TC = Total cost of previous units
n-1
of production required for the production of If previous total cost of producing 4 units
goods and services. Total cost is the sum is ` 200 and total cost of producing 5 units
of total fixed cost and total variable cost at is ` 250, then :
various levels of output. MC = TC – TC
n
n
n-1
TC = TFC + TVC = ` 250 – ` 200
TC = Total cost = ` 50
TFC = Total Fixed Cost
TVC = Total Variable Cost Find out :
Total Fixed Cost (TFC) : Total fixed costs If a firm produces 600 units of a
are those expenses of production which commodity in a day and incurs a total cost
are incurred on fixed factors such as land, of ` 30,000. Calculate the Average Cost.

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