1.0

Short-Run Costs

Short run

cost is the period at which the company can add one of the production factors

used in production. An analysis in

which certain factors are assumed to be fixed during the period analyzed In

short run output can be increased or decreased by changing only the variable

factors. in short run cost we can distinguish between fixed cost

and variable cost and lower total cost and cost per unit of a company;

·

Fixed

costs

Fixed

costs are costs that do not change following the production level. For example

are factory maintenance and insurance costs, monthly phone subscription

charges. Fixed costs can be calculated the same as variable costs, ie from

decreasing the formula calculating the total cost. The pest formula, is: TC =

FC + VC

FC = TC –

VC

·

Variable

cost

Variable

costs represent costs that change linearly according to the volume of the

company’s operating output. For example are the monthly phone call charges, the

expense of wages and raw materials. The variable cost can be calculated from

the formula calculation calculating the total cost, ie: TC = FC + VC

VC = TC –

FC

·

Marginal

cost

The

marginal cost can also be said to be an incremental cost. The marginal cost is

an increase in production costs incurred to increase production by one

additional unit of output. The marginal cost can be calculated using the

formula:

MCn =

TCn – TC n-1 or MCn = ?TC / ?Q

·

Average

fixed cost

The

average fixed cost is the cost that if the fixed cost (FC) to produce a certain

quantity of goods (Q) is divided by the amount of production. Average fixed

costs can be calculated using the following formula:

AFC =

TFC / Q

·

Average

variable cost

Average

variable cost is the cost that if variable cost (VC) to produce a number of

baran (Q) divided by a certain amount of production. Average variable cost can

be calculated using the following formula:

AVC =

TVC / Q

·

Total

cost

The

total cost is the sum of the total production costs incurred by the firm

consisting of fixed costs and variable costs. The total cost can be

calculated using the following formula:

TC =

TFC + TVC

·

Average

total cost

The

average total cost represents the cost that if the total cost (TC) for

producing a certain quantity of goods (Q) is divided by the amount of

production by the firm. The average total cost can be calculated using the

following formula:

AC =

TC / Q or AC = AFC + AVC

And this

is the curve of short run cost.

In the

picture above are depicted 3 types of curves that fall within the average total

cost curves group, namely:

The

TFC curve represents the total fixed cost

The

TVC curve that illustrates the cost changes completely

The TC

curve represents the total cost

At the

beginning if the number of factors changes is marginal, marginal production

increases and causes TVC to be somewhat sloping but, as production becomes more

and more, marginal production decreases and causes the TVC curve to be more

upright.

1.1

Algebraic Forms of Cost Functions

Cost functions may take many forms, but the cubic cost

function is frequently encountered and closely approximates any cost function.

The cubic cost function is given by:

where a, b, c, and f are constants. Note that f represents

fixed costs. Given an algebraic form of the cubic cost function, we may

directly calculate the marginal cost function. Formula: Marginal Cost for Cubic

Costs. For a cubic cost function, the marginal cost function is

1.3

Long Run Cost

In the

long run the company can add to all production factors or inputs that will be

used. Therefore, production costs need not be differentiated from fixed costs

and change costs. In the long run all costs are variable. Therefore the

relevant costs in the long run are the total cost, variable cost, average cost

and marginal cost. The change in total cost is equal to the variable cost

change and equal to the marginal cost.

How to

minimize costs in the long run can expand its production capacity, it has to

determine the size of plant capacity that will minimize the cost of production

in the economic analysis of plant capacity can be described the average cost

curve. So an analysis of how producers analyse

their production activities in an effort to minimize costs can be done with

respect to the AC curve for different capacities.

a)

Long-term Average Cost (LAC)

The

average total cost of the long term is the total cost divided by the amount of

output.

LAC = LTC / Q

LAC is Long term average cost

Q is Number of outputs

b)

Long-run Marginal Cost (LMC)

Long-term

marginal cost is an additional cost because it increases production by one

unit. The change in total cost is the same as the variable cost change. Long

term marginal costs can be calculated by the formula:

LMC = ?LTC / ?Q

Description:

LMC =

Long term marginal cost

?LTC =

Long-term total cost change

?Q =

Change of output.

Case

Study

The study popultion was shigellosis patients from a

surveillance project conducted on May 2002 to April 2003. The registered

residents (39,594 males and 40,547 females). There were 5,686 children aged

less than 5 years and 74,455 adults. Samples were collected from all diarrhea

patients from the Kaengkhoi District who visited community health-care centers,

the Kaengkhoi District Hospital, and the Saraburi Regional Hospital. Rectal

swap specimens were tested through the conventional culture method and

dot-enzyme linked immunosorbent assay

for shigella detection. The survei found that the incidence of diarrhea

among children less than 5 years was 122 cases per 1,000 population per year

and 24.69 per 1,000 population per year among the population 5 years and older.

The incidence of diarrhea patients was 31.59, whereas the incidence rate of

shigellosis was 1.96 per 1,000 population per year. The study included in and

outpatients of both genders and all age groups. The variables included in this

study were demographic characteristics(sex, age, and health insurance scheme),

service utilization (hospital services, pharmacy cost, and other medical

services for diagnosis and treatment), and direct medical cost or public

treatment cost.The stepwise multiple regression analysis was employed to

analyze the relationship between the public treatment cost (dependent variable)

and potential explanatory variables (independent variables). Assumption and

model diagnostics were also explored. Independent variables with a probability

value of F statistics = 0.05 in the analysis were entered. To estimatethe

expected response on an untransformed scale after fitting alinear regression

model of transformed scale, it needs to be adjusted by the smearing factor. To

retransform the predicted log of cost, the following equation was applied.

where eSi =antilog (exponential) form of the

unstandardized residual.

All 19 health centers in the Kaengkhoi District

participated in this project. The public treatment costs are defined as the

direct medical costs at these health centers, as well as in Kaengkhoi Hospital

and Saraburi Hospital. Cost analysis started from a calculation of the unit

cost of the medical services of all facilities Unit cost analysis was

calculated employing the same methods. The calculation consisted of five steps,

organization analysis and cost center classification, direct cost

determination, indirect cost determination, full cost determination, and

calculation of unit cost of medical services. the micro-costing method 34,35

was used for the unit cost calculation of the departments that had various cost

products and consumed different resources (e.g., laboratory, radiology,

physical therapy, operating room, emergency room). Micro-costing is a method

that allocates the cost of the production cost center to each unit of service.

First, resources directly consumed by each unit of service were valued. Then,

shared cost was allocated to the services in proportion to the direct cost of

the services.

1.4

Economic of scale

Economy

scale is a phenomenon of decrease in production cost per unit of a company that

occurs along with the increase in the amount of production (output). The

economies of scale refers to the low cost benefits derived from the expansion

of operational activities within a company and is one way to achieve low cost

advantage in order to create competitive advantage. Economies of scale can be

obtained from the process of development and work efficiency in operational

activities in all departments that exist in the company. In addition, companies

of all sizes can benefit from economies of scale during increased production

scales. The cost advantage of using economies of scale is derived from a

decrease in the total cost per unit of product or service through the increase

of production in a given period.

1.5

Sunk cost

A sunk cost is a cost that has already been

incurred and thus cannot be recovered. A sunk cost differs from future costs

that a business may face, such as decisions about inventory purchase costs or

product pricing. Sunk costs (past costs) are excluded from future business

decisions, because the cost will be the same regardless of the outcome of a

decision.

for the

example company has computer intel core i.3 but when compnay save so many

documents in computer intel core i.3 did not enough momory. So company buy the

new one computer with specification intel core i.10 to save the document, so

the computer core i.3 become the sunk cost.

1.6

Accounting Cost VS Economic Cost

Accounting cost is

costs associated with the cost to produce output.

Economic

cost is is Accounting cost + opportunity lost because it does not produce other

goods

Accounting costs come

from the total explicit costs of

the company during the fiscal year.Explicit costs are defined monetary values

and are used to calculate net income at the end of the fiscal year. For

example, if a company spends $500,000 on employee wages, $200,000 on office

supplies, rent, capital etc, and $300,000 on inventory, the total accounting

costs are $1,000,000 for the year.

Economic costs consider both the explicit and implicit costs to

the company that occur during the fiscal year.Implicit costs are associated

with resources that are provided to the company with no price tag. For example,

if a company operates out of a building it owns, it experiences an implicit

cost from the rent it could earn from

leasing the building to another company. The building could earn $5,000 a month

from a commercial renter, so the company has an implicit cost of $60,000 per

year to add to its economic costs.

So using my examples:

Accounting/Explicit costs = $1,000,000

Economic/Implicit costs = $60,000