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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;

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·        
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

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