Average and marginal costs - values ​​for finding the optimal volume of production. Average and marginal costs

In practice, the concept of production costs is usually used. This is due to the difference between economic and accounting sense of costs. Indeed, for an accountant, costs are actually spent amounts of money, costs, documented, i.e. expenses.

Cost, as an economic term, includes both the amount of money actually spent and the loss of profits. By investing money in any investment project, the investor is deprived of the right to use it in any other way, for example, to invest in a bank and receive a small, but stable and guaranteed, if, of course, the bank does not go bankrupt, interest.

The best use of available resources is called opportunity cost or opportunity cost in economics. It is this concept that distinguishes the term "costs" from the term "costs". In other words, costs are costs less the opportunity cost. Now it becomes obvious why in modern practice it is the costs that form the prime cost and are used to determine taxation. After all, the opportunity cost is a rather subjective category and cannot reduce taxable profit. Therefore, the accountant deals precisely with costs.

However, for economic analysis, opportunity costs are of fundamental importance. It is necessary to determine the lost profit, but "is it worth the candle?" It is on the basis of the concept of opportunity costs that a person who is able to create his own business and work “for himself” may prefer a less complex and nervous type of activity. It is on the basis of the concept of opportunity cost that one can make a conclusion about the expediency or inexpediency of making certain decisions. It is not by chance that when determining the manufacturer, contractor and subcontractor, a decision is often made to announce an open tender, and when evaluating investment projects in conditions when there are several projects, and some of them must be postponed for a certain time, the lost profit coefficient is calculated.

Fixed and variable costs

All costs, minus alternative costs, are classified according to the criterion of dependence or independence from the volume of production.

Fixed costs - costs that do not depend on the volume of products. They are designated FC.

Fixed costs include expenses for the payment of technical personnel, security of premises, advertising of products, heating, etc. The fixed costs also include depreciation charges (for the restoration of fixed capital). To define the concept of depreciation, it is necessary to classify the assets of the enterprise into fixed and working capital.

Fixed capital is capital that transfers its value to finished products in parts (the cost of a product includes only a small fraction of the cost of equipment with which the production of a given product is carried out), and the value of the means of labor is called fixed assets. The concept of fixed assets is broader, since they also include non-productive assets that may be on the balance sheet of an enterprise, but their value is gradually lost (for example, a stadium).

The capital that transfers its value to the finished product during one turnover, spent on the purchase of raw materials and materials for each production cycle, is called circulating. Depreciation is the process of transferring the value of fixed assets to finished goods in parts. In other words, the equipment sooner or later wears out or becomes obsolete. Accordingly, it loses its usefulness. This also happens due to natural reasons (use, temperature fluctuations, structural wear, etc.).

Depreciation deductions are made on a monthly basis based on the depreciation rates established by law and the book value of fixed assets. Depreciation rate - the ratio of the amount of annual depreciation charges to the cost of fixed assets, expressed as a percentage. The state establishes different depreciation rates for certain groups of fixed assets.

The following methods of depreciation are distinguished:

Linear (equal deductions over the entire service life of the depreciable property);

Diminishing balance method (depreciation is charged from the entire amount only in the first year of equipment service, then the accrual is made only from the not transferred (remaining) part of the cost);

Cumulative, by the sum of the number of years of useful use (the cumulative number is determined, which represents the sum of the number of years of useful use of the equipment, for example, if the equipment is depreciated over 6 years, then the cumulative number will be 6 + 5 + 4 + 3 + 2 + 1 = 21; then the price of the equipment is multiplied by the number of years of useful use and the resulting product is divided by the cumulative number, in our example, for the first year, depreciation deductions at the cost of equipment 100,000 rubles will be calculated as 100,000x6 / 21, depreciation deductions for the third year will be 100,000x4 / 21, respectively);

Proportional, in proportion to the output (depreciation is determined per unit of production, which is then multiplied by the volume of production).

In the context of the rapid development of new technologies, the state can apply accelerated depreciation, which allows more frequent replacement of equipment at enterprises. In addition, accelerated depreciation can be carried out within the framework of state support for small businesses (depreciation deductions are not subject to income tax).

Variable costs are costs that directly depend on the volume of production. They are designated VC. Variable costs include the cost of raw materials and materials, piecework wages of workers (it is calculated based on the volume of products produced by the employee), part of the cost of electricity (since electricity consumption depends on the intensity of the equipment operation) and other costs depending on the volume of products.

The sum of fixed and variable costs is gross costs. They are sometimes referred to as complete or generic. They are designated TS. It is not hard to imagine their dynamics. It is enough to raise the curve of variable costs by the amount of constant ones, which is shown in Fig. one.

Rice. 1. Production costs.

The ordinate shows fixed, variable and gross costs, and the abscissa shows the volume of output.

Analyzing gross costs, it is necessary to pay special attention to their structure and its change. Comparing gross costs with gross income is called gross performance analysis. However, for a more detailed analysis, it is necessary to determine the relationship between costs and the volume of output. For this, the concept of average costs is introduced.

Average costs and their dynamics

Average costs are the costs of producing and selling a unit of output.

Average total costs (average gross costs, sometimes referred to simply as average costs) are determined by dividing total costs by the quantity of products produced. They are designated ATC or simply AS.

Average variable costs are determined by dividing variable costs by the quantity of products produced.

They are designated AVC.

Average fixed costs are determined by dividing fixed costs by the quantity of products produced.

They are designated AFC.

It is only natural that average total costs are the sum of average variable and average fixed costs.

Average costs are high in the beginning, since starting a new production requires certain fixed costs, which are high per unit of output at the initial stage.

Average costs are gradually decreasing. This is due to the growth in output. Accordingly, with an increase in the volume of production per unit of output, less and less fixed costs are accounted for. In addition, the growth of production makes it possible to purchase the necessary materials and tools in large quantities, which, as you know, is much cheaper.

However, after a while, variable costs begin to rise. This is due to the diminishing marginal productivity of factors of production. The growth of variable costs leads to the beginning of an increase in average costs.

However, the minimum average cost does not mean the maximum profit. At the same time, the analysis of the dynamics of average costs is of fundamental importance. It allows you to:

Determine the volume of production corresponding to the minimum costs per unit of production;

Compare the cost per unit of output with the unit price in the consumer market.

In fig. 2 shows a variant of the so-called marginal firm: the price line touches the average cost curve at point B.

Rice. 2. Point of zero profit (B).

The point where the price line and the average cost curve touch is usually called the zero profit point. The firm is able to cover the minimum costs per unit of production, but the opportunities for the development of the enterprise are extremely limited. From the point of view of economic theory, the firm does not care whether to stay in the industry, or leave it. This is due to the fact that at this point the owner of the enterprise receives a normal remuneration for the use of his own resources. From the point of view of economic theory, normal profit, considered as the return on capital at the best alternative use of capital, is part of the cost. Therefore, the average cost curve also includes opportunity costs (it is easy to guess that in conditions of pure competition in the long run, entrepreneurs receive only the so-called normal profit, and there is no economic profit). The analysis of average costs needs to be complemented by a study of marginal costs.

The concept of marginal cost and marginal revenue

Average costs characterize unit costs, gross costs - costs in general, and marginal costs make it possible to study the dynamics of gross costs, try to foresee negative trends in the future and ultimately draw a conclusion about the most optimal version of the production program.

Marginal cost is the additional cost incurred in producing an additional unit of output. In other words, marginal cost is the increase in gross costs for an increase in production by one unit. Mathematically, we can define marginal costs as follows:

MC = ΔTC / ΔQ.

Marginal cost indicates whether the output of an additional unit of output is profitable or not. Consider the dynamics of marginal costs.

Initially, marginal costs are reduced, remaining below average. This is due to lower unit costs due to positive economies of scale. Then, like average, marginal costs begin to rise.

It is obvious that the production of an additional unit of production also gives an increase in total income. To determine the increase in income due to an increase in production, the concept of marginal revenue or marginal revenue is used.

Marginal income (MR) - additional income received with an increase in production by one unit:

MR = ΔR / ΔQ,

where ΔR is the change in the income of the enterprise.

Subtracting the marginal cost from the marginal income, we get the marginal profit (it can be negative). Obviously, the entrepreneur will increase the volume of production as long as he retains the opportunity to receive marginal profit, despite its decrease due to the law of diminishing returns.

Source - M.N. Golikov Microeconomics: a teaching aid for universities. - Pskov: PSPU Publishing House, 2005, 104 p.

The costs of the enterprise can be considered in the analysis from different points of view. They are classified based on various characteristics. From the standpoint of the influence of product turnover on costs, they can be dependent or independent of an increase in sales. Variable costs, the example of the definition of which requires careful consideration, allow the head of the company to manage them by increasing or decreasing the sale of finished products. Therefore, they are so important for understanding the correct organization of the activities of any enterprise.

general characteristics

Variables (Variable Cost, VC) are those costs of an organization that change with an increase or decrease in the growth of sales of manufactured products.

For example, upon termination of a company, variable costs should be zero. An enterprise, in order to carry out its activities efficiently, will need to regularly evaluate its cost indicator. After all, it is they that affect the size of the cost of finished products and turnover.

Such items.

• The book value of raw materials, energy resources, materials that are directly involved in the production of finished products.
• Cost of manufactured products.
• The salary of employees, depending on the implementation of the plan.
• Percentage from the activities of sales managers.
• Taxes: VAT, tax on the USN, USN.

Understanding variable costs

To correctly understand such a concept, how their definitions should be considered in more detail. Thus, production in the process of fulfilling its production programs spends a certain amount of materials from which the final product will be made.

These costs can be attributed to variable direct costs. But some of them should be separated. A factor such as electricity can be attributed to fixed costs. If the cost of lighting the territory is taken into account, then they should be attributed to this category. Electricity directly involved in the manufacturing process is classified as variable costs in the short term.

There are also costs that depend on the turnover, but are not directly proportional to the production process. This trend can be caused by insufficient workload (or excess) of production, a discrepancy between its design capacity.

Therefore, in order to measure the efficiency of an enterprise in the field of managing its costs, one should consider variable costs as obeying a line schedule over a segment of normal production capacity.

Classification

There are several types of classifications for variable costs. With a change in costs, implementation is distinguished:

• proportional costs, which increase in the same way as the volume of production;
• progressive costs, increasing at a faster rate than implementation;
• degressive costs, which increase at a slower rate with the growth of production rates.

According to statistics, the variable costs of the firm can be:

• general (Total Variable Cost, TVC), which are calculated across the entire product range;
• averages (AVC, Average Variable Cost), calculated per unit of goods.

According to the method of accounting in the cost of finished products, there are variables (they are simply attributed to the cost) and indirect (it is difficult to measure their contribution to the cost).

With regard to the technological output of products, they can be production (fuel, raw materials, energy, etc.) and non-production (transportation, interest to the intermediary, etc.).

General variable costs

The output function is similar to variable costs. It is continuous. When all costs are brought together for analysis, total variable costs are obtained for all products of one enterprise.

When common variables are combined and their total sum in the enterprise is obtained. This calculation is carried out in order to reveal the dependence of the changed costs on the volume of production. Next, using the formula, the variable marginal costs are found:

MS = ΔVC / ΔQ, where:

• MC - marginal variable costs;
• ΔVC is the increase in variable costs;
• ΔQ is the increase in the volume of output.

Calculation of average costs

Average Variable Cost (AVC) is a company's resources per unit of output. Within a certain range, production growth has no effect on them. But when the design power is reached, they begin to increase. This behavior of the factor is explained by the heterogeneity of costs and their increase at a large scale of production.

The presented indicator is calculated as follows:

AVC = VC / Q, where:

• VC is the number of variable costs;
• Q is the number of products released.

In terms of dimensions, the average variable costs in the short run are similar to the change in average total costs. The higher the output of finished goods, the more the total costs begin to correspond to the increase in variable costs.

Calculation of variable costs

Based on the above, a variable cost (VC) formula can be defined:

• VC = Cost of materials + Raw materials + Fuel + Electricity + Bonus salary + Percentage of sales to agents.
• VC = Gross Profit - Fixed Cost.

The sum of variable and fixed costs is equal to the indicator of the total costs of the organization.

Variable costs, an example of the calculation of which was presented above, participate in the formation of their overall indicator:

Total costs = Variable costs + Fixed costs.

Definition example

To gain a deeper understanding of how variable costs are calculated, consider an example from a calculation. For example, a company characterizes its output with the following points:

• Material and raw material costs.
• Energy costs for the production of products.
• The salary of workers who produce products.

It is argued that variable costs are directly proportional to the growth in sales of finished products. This fact is taken into account to determine the break-even point.

For example, it was calculated that there were 30 thousand units of products. If you build a graph, then the level of breakeven production will be zero. If the volume is reduced, the company's activities will move to the unprofitable plane. And similarly, with an increase in production volumes, an organization will be able to receive a positive net profit.

How to reduce variable costs

The strategy of using "economies of scale", which manifests itself with an increase in production volumes, can increase the efficiency of an enterprise.

The reasons for its appearance are as follows.

1. Using the achievements of science and technology, conducting research, which increases the manufacturability of production.
2. Reducing the cost of wages for managers.
3. Narrow specialization of production, which makes it possible to perform each stage of production tasks with a higher quality. At the same time, the percentage of rejects decreases.
4. Introduction of technologically similar production lines, which will provide additional capacity utilization.

At the same time, variable costs are observed below the growth in sales. This will increase the efficiency of the company.

Having become familiar with such a concept as variable costs, an example of the calculation of which was given in this article, financial analysts and managers can develop a number of ways to reduce overall production costs and reduce production costs. This will make it possible to effectively manage the rate of turnover of the company's products.

The purpose of creating a business - opening a company, building a plant with the subsequent release of planned products - is to make a profit. But an increase in personal income requires considerable expenses, and not only moral, but also financial. All monetary expenditures aimed at the production of any good are called costs in the economy. To work without losses, you need to know the optimal volume of goods / services and the amount of funds spent for their release. For this, average and marginal costs are calculated.

Average costs

With an increase in the volume of production, the costs dependent on it grow: raw materials, wages of basic workers, electricity and others. They are called variables and have different dependencies for different quantities of goods / services. At the beginning of production, when the volume of goods produced is small, variable costs are significant. As the number of products increases, the level of costs decreases as there is an effect of economies of scale. However, there are such costs that the entrepreneur incurs even with zero production of goods. Such costs are called constant: utilities, rent, salaries of administrative personnel.

Total costs are the aggregate of all costs for a specific amount of goods produced. But to understand the economic costs invested in the process of creating a unit of goods, it is customary to refer to average costs. That is, the quotient of total costs to the volume of output is equal to the value of average costs.

Marginal cost

Knowing the value of the funds spent on the sale of one unit of good, it cannot be argued that an increase in output by another 1 unit will be accompanied by an increase in total costs, in an amount equal to the value of average costs. For example, to produce 6 cupcakes, you need to invest 1200 rubles. It is easy to calculate right away that the cost of one cupcake should be at least 200 rubles. This value is equal to the average cost. But this does not mean that the preparation of another baking will cost 200 rubles more. Therefore, in order to determine the optimal volume of production, it is necessary to know how much it will take to invest in order to increase output by one unit of good.

Economists are helped by the marginal cost of the firm, which helps to see the increase in total costs associated with the creation of an additional unit of goods / services.

Calculation

MS - such a designation in economics has marginal costs. They are equal to the quotient of the increase in total costs to the increase in volume. Since the increase in total costs in the short run is caused by an increase in average variable costs, the formula can be as follows: MC = ΔTC / Δvolume = Δaverage variable costs / Δvolume.

If the values ​​of gross costs corresponding to each unit of output are known, then marginal costs are calculated as the difference between two adjacent values ​​of total costs.

Relationship between marginal and average costs

Economic decisions on the conduct of business activities should be made after marginal analysis, which is based on marginal comparisons. That is, comparison of alternative solutions and determination of their effectiveness occurs by assessing the increment of costs.

Average and marginal costs are interrelated, and the change in one in relation to the other is the reason for adjusting the volume of output. For example, if marginal costs are less than average ones, then it makes sense to increase output. It is worth stopping the increase in production when the marginal costs are above average.

Equilibrium will be a situation in which marginal costs are equal to the minimum value of average costs. That is, it makes no sense to further increase production, since the additional costs will grow.

Schedule

The presented graph shows the costs of the company, where ATC, AFC, AVC are the average total, fixed and variable costs, respectively. The marginal cost curve is designated MC. It has a convex shape towards the abscissa and at the minimum points intersects the curves of average variables and total costs.

From the behavior of the average fixed costs (AFC) on the graph, we can conclude that increasing the scale of production leads to their decrease, as mentioned earlier, there is an effect of economies of scale. The difference between ATC and AVC reflects the value of fixed costs, it is constantly decreasing due to the approach of AFC to the abscissa axis.

Point P, which characterizes a certain volume of product output, corresponds to the equilibrium state of the enterprise in the market. If you continue to increase the volume, then the costs will need to be covered by profits, since they will begin to increase sharply. Therefore, the firm should focus on volume at P.

Marginal income

One of the approaches to calculating production efficiency is to compare marginal costs with marginal income, which is equal to the increase in cash from each additionally sold unit of goods. However, the expansion of production is not always associated with an increase in profits, because the dynamics of costs is not proportional to the volume and with an increase in supply, demand decreases and, accordingly, the price.

The marginal cost of the firm is equal to the price of the good minus the marginal revenue (MR). If the marginal cost is lower than the marginal revenue, then production can be expanded, otherwise it must be curtailed. By comparing the values ​​of marginal costs and income, for each value of the volume of output, it is possible to determine the points of minimum cost and maximum profit.

Profit maximization

How to determine the optimal size of production to maximize profits? This can be done by comparing marginal revenue (MR) and marginal cost (MC).

Each new product produced adds the amount of marginal income to total income, but at the same time increases total costs by the amount of marginal costs. Any unit of output whose marginal revenue exceeds its marginal cost should be produced because the firm will receive more revenue from the sale of that unit than it will add to costs. Production is profitable as long as MR> MC, but with an increase in the volume of output, the increasing marginal costs due to the action of the law of diminishing returns will make production unprofitable, since they will begin to exceed the marginal income.

Thus, if MR> MS, then production must be expanded, if MR< МС, то его надо сокращать, а при MR = МС достигается равновесие фирмы (максимум прибыли).

Features when using the rule of equality of limit values:

• The condition MC = MR can be used to maximize profits when the value of the good is higher than the minimum value of the average variable costs. If the price is lower, the company does not achieve its goal.
• Under conditions of pure competition, when neither buyers nor sellers can influence the formation of the value of the good, the marginal revenue is equivalent to the unit price of the good. This implies the equality: P = MC, in which the marginal cost and the marginal price are the same.

A graphical representation of the equilibrium of a firm

In a purely competitive environment, when the price is equal to the marginal revenue, the graph looks like this.

The marginal cost, the curve of which crosses the line parallel to the abscissa axis, characterizing the price of the good and the marginal income, form a point showing the optimal sales volume.

In practice, there are moments when doing business when an entrepreneur should think not about maximizing profits, but minimizing losses. This happens when the price of a good decreases. Stopping production is not the best way out, since fixed costs must be paid. If the price is less than the minimum value of gross average costs, but exceeds the value of the average variables, then the decision should be based on the output of goods in the volume obtained at the intersection of the marginal values ​​(income and costs).

If the price of a product in a purely competitive market has fallen below the variable costs of the firm, then management must take a responsible step and temporarily stop selling goods until the value of an identical good rises in the next period. This will be the impetus for an increase in demand due to a decrease in supply. An example is agricultural firms that sell products in the autumn-winter period, and not immediately after harvest.

Long-term costs

The time interval during which changes in the production capacity of the enterprise can occur is called the long-term period. The firm's strategy should include a cost analysis for the future. Long-term average and marginal costs are also considered in the long run.

With the expansion of production capacity, there is a decrease in average costs and an increase in volumes up to a certain point, then costs per unit of output begin to grow. This phenomenon is called economies of scale.

The long-term marginal spending of an enterprise shows the change in all costs due to an increase in output. The curves of average and marginal costs over time are related to each other similarly to the short-run period. The main strategy in the long run is the same - it is to determine the volume of production by means of the equality MC = MR.

Short term - this is a period of time during which some factors of production are constant, while others are variable.

Constant factors include fixed assets, the number of firms operating in the industry. In this period, the firm has the ability to vary only the degree of utilization of production facilities.

Long term Is the length of time during which all factors are variable. In the long run, a firm has the ability to change the overall dimensions 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 run does not change with an increase or decrease in the volume of production.

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

Because as the volume of production increases, the total revenue grows, then the average fixed costs (AFC) represent a decreasing value.

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

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

Average Variable Costs (AVC) are:

Total Cost (TC) - a set of fixed and variable costs of the firm.

Total costs are a function of the product produced:

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

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

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

ATS can be graphically obtained by summing the AFC and AVC curves.

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

20. Production costs in the long run

The main feature of costs in the long run is the fact that they are all variable in nature - the company can increase or decrease capacity, and also has enough time to make a decision to leave this market or enter it, moving from another industry. Therefore, in the long run, the average fixed and average variable costs are not distinguished, but the average cost per unit of output (LATC) is analyzed, which, in essence, are at the same time the average variable costs.

To illustrate the situation with costs in the long run, consider a conditional example. Some enterprise has been expanding for quite a long period of time, increasing the volume of its production. The process of expanding the scale of activity is conditionally divided into stages within the analyzed long-term period, three short-term, each of which corresponds to a different size of the enterprise and the volume of products. For each of the three short-term periods, short-term average cost curves can be plotted for different plant sizes - ATC 1, ATC 2 and ATC 3. The general curve of average costs 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 above example, we used the 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. Moreover, for each of them, you can draw the corresponding ATC schedules. 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 curve (LATC) is a curve enveloping an infinite number of curves of short-term average production costs, which are in contact with it at the points of their minimum. The long-run average cost curve shows the lowest cost per unit of output, with which any volume of output can be provided, provided that the firm has time to change all factors of production.

There are also marginal costs in the long run. Long term marginal cost (LMC) show the change in the total cost of an enterprise due to a change in the volume of output of finished goods 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 correlate with each other in the same way as the short-run cost curves: if the LMC is below the LATC, then the LATC falls, and if the LMC is above the laTC, then the laTC increases. The rising part of the LMC curve intersects the LATC curve at the minimum point.

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

Positive economies of scale (mass production, economies of scale, increasing returns to scale) are associated with lower unit costs as the output increases. Increasing returns to scale (positive economies of scale) takes place in a situation when the volume of production (Q x) grows faster than costs grow, and, therefore, the LATC of the enterprise falls. The existence of a positive economies of scale of production explains the downward character of the LATS schedule in the first segment. This is explained by the expansion of the scale of activities, which entails:

1. Growth of labor specialization... Labor specialization implies that diverse production responsibilities are divided among different workers. Instead of performing several different production operations simultaneously, which would take place with a small scale of activity of the enterprise, in conditions of mass production, each worker can be limited to one single function. Hence the increase in labor productivity, and, consequently, a decrease in costs per unit of production.

2. Growth of specialization of managerial work... As the size of the enterprise grows, so does the opportunity to take advantage of the specialization in management, where 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 technologically efficient equipment is sold in large, expensive packages and requires large volumes of production. The use of this equipment by large manufacturers allows to reduce the cost per unit of production. Such equipment is not available to small firms due to small production volumes.

4. Savings from the use of secondary resources... A large enterprise has more opportunities for the production of by-products than a small firm. A large firm, therefore, more efficiently uses the resources involved in production. Hence the lower costs per unit of production.

The gains to economies of scale in the long run are not unlimited. Over time, the expansion of an enterprise can lead to negative economic consequences, cause a negative effect of the scale of production, when the expansion of the volume of the firm's activities is associated with an increase in production costs per unit of output. Negative economies of scale occurs when the cost of production grows faster than its volume and, therefore, the LATC grows as output increases. Over time, an expanding company may face negative economic facts due to the increasing complexity of the enterprise management structure - the management floors separating the administrative apparatus and the production process itself multiply, top management turns out to be significantly distant from the production process at the enterprise. There are problems associated with the exchange and transmission of information, poor coordination of decisions, bureaucratic red tape. The effectiveness of interaction between individual divisions of the company decreases, the flexibility of management is lost, and control over the implementation of decisions made by the management of the company becomes more complicated and difficult. As a result, the efficiency of the enterprise decreases, the average production costs grow. Therefore, the firm, when planning its production activities, must determine the limits of the scale of production.

In practice, there are cases when the LATC curve is parallel to the abscissa 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. Constant returns to scale occurs when costs and volume of production grow at the same rate and, therefore, LATC remains constant for all volumes of production.

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

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

2. The LATC curve has a fairly long first (descending) segment, on which a positive effect of the scale of production operates (Figure b). The minimum cost is achieved at large production volumes (Q c). If the technological features of the production of certain goods give rise to a curve of long-run average costs 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, etc. Significant economies of scale are observed in the production of standardized products - beer, confectionery, etc.

3. The falling segment of the graph of long-term average costs is very insignificant, negative economies of scale of production start to work quickly (Figure c). In this situation, the optimal production volume (Q D) is achieved with a small production volume. In the presence of a market with a large capacity, one 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 of retail trade, farms, etc.

Selection of factors of production that minimize production

Let's start by looking at a fundamental problem that all firms face: how to choose the combination of factors to achieve a certain volume of production at the lowest cost. For simplicity, let's take two variables: labor (measured in hours worked) and capital (measured in hours used by machinery and equipment). We proceed from the assumption that both labor and capital can be hired or rented in competitive markets. The price of labor equals the wage rate w, and the price of capital equals the rent for equipment r. We assume that capital is “leased” rather than acquired, and therefore we can put all business decisions on a comparative basis. Since labor and capital are attracted on a competitive basis, we take the price of these factors constant. Then we can focus on the optimal mix of factors of production without worrying that large purchases will cause a jump in the prices of the factors of production used.

22 Determining the price and volume of production in a competitive industry and in a purely monopoly environment Pure monopoly contributes to the growth of inequality in the distribution of income in society as a result of monopoly market power and the establishment of higher prices at the same costs than in pure competition, which allows you to obtain monopoly profits. In conditions of market power, it is possible for a monopolist to use price discrimination, when different prices are assigned to different buyers. Many of the purely monopoly firms are natural monopolies that are subject to mandatory government regulation under antitrust laws. To study the case of a regulated monopoly, we use the graphs of demand, marginal revenue and costs of a natural monopoly, which operates in an industry where a positive economies of scale are manifested for all volumes of output. The higher the production volume of a firm, the lower its average ATC costs. In connection with such a change in average costs, the marginal costs of the MS for all volumes of production will be lower than the average costs. This is because, as we have established, the marginal cost graph intersects the average cost graph at the ATC minimum, which is absent in this case. Determination of the optimal volume of production by a monopolist and possible methods of its regulation are shown in Fig. Price, marginal revenue (marginal revenue) 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 = МС and the demand curve for its products, would choose the quantity of products Qm and the price Pm that allowed to get him the maximum gross profit. However, the Pm price 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 the marginal cost (P = MC). In fig. this is the price Po at the point of intersection of the demand schedule D and the marginal cost curve MC (point O). The volume of production at this price is Qo. However, if the state authorities fixed the price at the level of the socially optimal price Po, then this would lead the monopolist to losses, since the price Po does not cover the average gross costs of the ATS. To solve this problem, the following main options for regulating the monopolist are possible: Allocation of state subsidies from the budget of the monopoly industry to cover the gross loss in the event that a fixed price is established at the level of the socially optimal one. Granting the monopoly industry the right to discriminate against prices in order to generate additional income from more solvent consumers to cover the loss of the monopolist. Setting the regulated price at a level that provides a normal profit. In this case, the price is equal to the average gross cost. In the figure, this is the price Pn at the intersection of the demand graph D and the curve of the average gross costs of the vehicle. Output at the regulated price Pn is equal to Qn. The Pn price allows the monopolist to recover all economic costs, including making a normal profit.

23. This principle is based on two main points. First, the firm must decide whether it will manufacture the product. It should be done if the firm can make either a profit or a loss that is less than fixed costs. Second, you need to decide how much to produce. This volume of production 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, at which the profit R is maximized, i.e.: R (Q) ^ max. The analytical definition 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 varies depending on changes in volumes The increment in the sum of variable costs associated with an increase in the volume of production by one unit is not constant. marginal productivity falls and, consequently, variable costs increase at an increasing rate. "To calculate variable costs, it is proposed to apply the formula, and according to the results of statistical analysis it was found 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 for which: Rj (Qj)> 0, then Pg = PMh Rj (Qj)< 0, то возможны два варианта: отказ от производства i-го товара; установление Рг >RMg. The difference between this technique and approach 1.2 is that the optimal sales volume at a given price is determined here. It is then also compared to the maximum "market" sales volume. The disadvantage of this technique is the same as in 1.2 - the entire possible composition of the enterprise's products, together with its technological capabilities, is not taken into account.

The concept of average costs. Average fixed costs (AFC), average variable costs (AVC), average total costs (ATC), the concept of marginal costs (MC) and their schedules.

Average costs- This is the value of the total costs attributable to the value of the product produced.

Average costs are divided, in turn, into average fixed costs and average variable costs.

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

Average variable costs(AVC) is the amount of variable costs per unit of output.

In contrast to the average constant, the average variable costs can both decrease and increase as the volume of output increases, which is explained by the dependence of the total variable costs on the volume of production. Average variable costs reach their minimum when the volume provides the maximum value of the average product

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

ATC = TC / Q = FC + VC / Q

Marginal cost Is an increase in total costs caused by an increase in output per unit of output.

MC curve intersects AVC and ATC at points corresponding to the minimum value of the average variable and average total cost.

Question 23. Production costs in the long run. Depreciation and amortization. The main directions of using depreciation funds.

The main feature of costs in the long run is the fact that they are all variable in nature - the company can increase or decrease capacity, and also has enough time to make a decision to leave this market or enter it, moving from another industry. Therefore, in the long run, the average fixed and average variable costs are not distinguished, but the average cost per unit of output (LATC) is analyzed, which, in essence, are at the same time the average variable costs.

Depreciation of fixed assets (funds ) - a decrease in the initial cost of fixed assets as a result of their wear out in the production process (physical wear) or as a result of obsolescence of machines, as well as a decrease in the cost of production in conditions of growth in labor productivity. Physical deterioration fixed assets depend on the quality of fixed assets, their technical improvement (design, type and quality of materials); features of the technological process (values ​​of speed and cutting force, feed, etc.); their duration (number of days of work per year, shifts per day, hours of work per shift); degree of protection from external conditions (heat, cold, humidity); the quality of care of fixed assets and their maintenance, from the qualifications of workers.

Obsolescence- a decrease in the cost of fixed assets as a result of: 1) a decrease in the cost of production of the same product; 2) the emergence of more advanced and productive machines. Obsolescence of the means of labor means that they are physically fit, but economically they do not justify themselves. This depreciation of fixed assets does not depend on their physical depreciation. A physically fit car can be so obsolete that its operation becomes economically unprofitable. Both physical and moral deterioration leads to loss of value. Therefore, each enterprise should ensure the accumulation of funds (sources) necessary for the acquisition and restoration of permanently worn out fixed assets. Depreciation(from the middle - century lat. amortisatio - repayment) is: 1) gradual depreciation of assets (equipment, buildings, structures) and the transfer of their value in parts to manufactured products; 2) a decrease in the value of taxable property (by the amount of capitalized tax). Depreciation is due to the peculiarities of the participation of fixed assets in the production process. Fixed assets are involved in the production process for a long period (at least one year). At the same time, they retain their natural shape, but gradually wear out. Depreciation is charged monthly according to established rates depreciation charges. The accrued depreciation amounts are included in the cost of production or distribution costs, and at the same time, due to the depreciation deductions, sinking fund, used for the complete restoration and overhaul of fixed assets. Therefore, proper planning and the actual calculation of depreciation contributes to the accurate calculation of the cost of production, as well as the determination of the sources and amounts of financing of capital investments and capital repairs of fixed assets. Depreciable property property, results of intellectual activity and other objects of intellectual property are recognized that are owned by the taxpayer and are used by him to generate income and the cost of which is repaid through depreciation. Depreciation deductions - accruals with subsequent deductions, reflecting the process of gradual transfer of the cost of labor instruments as they are physically and morally worn out to the value of products, works and services produced with their help in order to accumulate funds for subsequent full recovery. They are charged both for tangible assets (fixed assets, low-value and wearing items) and intangible assets (intellectual property). Depreciation deductions are made according to the established depreciation rates, their amount is established for a certain period for a specific type of fixed assets (group; subgroup) and is expressed, as a rule, as a percentage per year of depreciation to their book value. Sinking fund - a source of capital repairs of fixed assets, capital investments. Formed due to depreciation deductions. Depreciation problem (depreciation) - to allocate the value of tangible durable assets to costs over the expected useful life based on the use of systematic and rational records, i.e. it is a distribution process, not an assessment. There are several essential points in this definition. First, all tangible durable assets, except land, have a limited useful life. Due to their limited lifespan, the value of these assets must be expensed over all years of operation. The two main reasons for the limited life of assets are physical and obsolescence (obsolescence). Periodic repairs and careful maintenance can keep buildings and equipment in good condition and significantly extend their lifespan, but ultimately every building and every machine must become unusable. The need for amortization cannot be ruled out by regular repairs. Obsolescence is a process as a result of which assets do not meet modern requirements due to progress in the development of technology and for other reasons. Even buildings often become morally obsolete without having time to wear out physically. Second, amortization is not a valuation process. Even if the market price of a building or other asset may rise as a result of a bargain and specific market conditions, depreciation should continue to be charged (accounted for), since it is a consequence of the allocation of previously incurred costs, and not of an appraisal. Determination of the amount of depreciation for the reporting period depends on: the initial cost of objects; their residual value; amortized cost; estimated useful life.