Economics

CONCEPT OF REVENUE Meaning : The sale proceeds that a firm gets from the sale of its product is called revenue.  The revenue of a firm is its sale receipts or money receipts from the sale of a product. It is also called as sale proceeds. Total revenue Total money receipts of a firm from the sale of a given output is called total revenue. It is the total money receipts of a producer on account of the sale of his total output. Total revenue a firm earned is calculated by multiplying total sale by the price at which the product is sold.                  Total revenue= Output×price Average revenue   Average revenue is total revenue divided by the output . It is nothing but the sale price of the product.It refers to the revenue per unit of output sold .The price and Average revenue of a product is a same thing.                                   TR ...

Concept of cost Meaning : Cost refers to the expenditure incurred by a producer on the factor (land, Labour, capital) as well as non factor (raw material) inputs for a given amount of output of a commodity. Types of costs  a) Money costs -Money costs refers to the sum of all payments to the factors of production engaged in the production of that commodity . It is the cost which enters the records of accountants of a company. b) Opportunity cost   - Opportunity cost is the forgone value of inputs measured in terms of currently available next best alternative that is sacrificed. c) Explicit costs - Expenditure incurred by the producer on the purchase of input from the market is called explicit costs. d) Implicit costs - Estimated expenditure on the use of self owned inputs is called implicit cost. e) Selling costs - Selling costs refer to the expenditure incurred by the producer in order to promote sale of the commodity. Expenditure on advertisement is selling cost f) Short...

Internal and external Diseconomies The economies obtained by a firm or an industry are ultimately limited.A point comes where some factors start operation in the opposite direction and the cost of production start rising .These factors are called as internal and external Diseconomies. Internal Diseconomies These are those factors which raise the cost of production bid a firm as its scale of production is increased beyond a particular point.  These include following given factors : a) Technical difficulties - A main reason for internal Diseconomies is technical difficulties of operating large sized firm. There is a limit to the division of labour and splitting down of production processes. As division of labour is pressed beyond a point, Indivisibility of factors comes in. Every machine has an optimum capacity for work and an optimum proportion with other factors. If this proportion is exceeded, internal Diseconomies follow. b) Unwieldy management - Another reason for decreasing re...

Internal economies Those economies where a firm increases its scale of production,the reduced costs or economies which this firms gets as a result are internal economies. It means increasing returns to scale. These are the result of increased division of labour or use of improved production methods . The benefits of these economies is recieved by a firm according to its organisational efficiency. Factors for internal economies . 1) Technical economies : Technical factors also affect the returns to scale. Bigger firms are able to install suitable machinery and as a result they have lower costs of production because these industries make full capacity use of those machinery. a) When a firm increases its scale of production , it's average cost of production falls simply because of larger volume of production. b)A large firm increases its scale of production, it is enabled to link its production processes from the use of raw material to marketing of its finished goods. 2) Managerial e...

Laws of returns to scale Meaning : The laws of returns to scale refer to the effect of changes in the scale of production. The responsiveness of output to a give proportionate change in the quantities of all inputs is called returns to scale. It shows what proportion output changes when there is some proportionate change in the amount of all inputs.  There are three possibilities of rate at which output changes in response to a change in scale of output i.e a) Constant returns to scale b) Increasing returns to scale c) Decreasing returns to scale Labour            Capital        Output       returns to   Units.               Units.                                Scale      1.                      1.      ...

PRODUCER'S equilibrium - Isoquants  Meaning : Isoquants are also called as Iso-Product curves or production indifference curve presented by Modern economists. Isoquants are used in finding producer equilibrium . An Isoquant shows different combinations of factors of production which when used in production process yield equal production and the producer will be indifferent as regards choice among those factor combinations. Combination of    Units of     Units of    Output  L and K                   Labour       Capital    Of cloth       A.                            1.                  15.           100       B.                      ...