CosL-ouLpuL 8elauonshlp

10/24/11 rof.rasad !oshl

CosL funcuon
1he cosL-ouLpuL relauonshlp plays an
lmporLanL role ln deLermlnlng Lhe opumum
level of producuon.
1C = l(C)
Where,
1C = 1oLal cosL
C = CuanuLy produced
l = funcuon
10/24/11 rof.rasad !oshl
1he cosL funcuon can be classled as :
(a)shorL-run cosL funcuon and
(b) long run-cosL funcuon.
10/24/11 rof.rasad !oshl
!"#$%&$'( ls dened as LhaL perlod durlng
whlch Lhe physlcal capaclLy of Lhe rm ls xed,
and durlng whlch ouLpuL can be lncreased
only by uslng Lhe exlsung capaclLy more
lnLenslvely.
)#(*&$'( ls a perlod durlng whlch lL ls posslble
Lo lncrease Lhe rm's capaclLy or Lo reduce lL
ln slze.
10/24/11 rof.rasad !oshl
ShorL run cosLs
10/24/11 rof.rasad !oshl
10/24/11 rof.rasad !oshl
ShorL run cosL curves
10/24/11 rof.rasad !oshl
Long run cosL curve
10/24/11 rof.rasad !oshl
Long run marglnal cosL curve
10/24/11 rof.rasad !oshl
+,#(#-./0 23 !,45/
10/24/11 rof.rasad !oshl
! When a rm expands lLs slze & goes for large
scale producuon, lL sLands Lo en[oy cerLaln
beneLs. Such advanLages whlch arlse due Lo
large scale producuon are known as economles
of scale.
! Accordlng Lo Marshal, Lhere are 2 Lypes of
economles of scale. 1hey are
! 6(%/$(45 +,#(#-./0 #3 !,45/
! +7%/$(45 +,#(#-./0 23 !,45/
10/24/11 rof.rasad !oshl
! 6(%/$(45 /,#(#-./0 23 0,45/: lL are Lhose
advanLages of large-scale producuon whlch
accrue Lo a rm on accounL of lLs superlor
Lechnlques & managemenL. lollowlng are some
of Lhe lL of scale.
! 8/,"(.,45 +,#(#-./0
! 94(4*/$.45 +,#(#-./0
! 94$:/;(* +,#(#-./0
! <.(4(,.45 +,#(#-./0
! =.0: >/4$.(* +,#(#-./0 #3 0,45/
10/24/11 rof.rasad !oshl
! +7%/$(45 /,#(#-./0 23 0,45/? when a parucular
lndusLry grows ln slze & sLrengLh, lL brlngs many
advanLages Lo all Lhe rms wlLhln LhaL lndusLry.
1hose advanLages whlch are avallable Lo all Lhe
rms are called Lhe LL of scale. lollowlng are
some of Lhe LL of scale.
! +,#(#-./0 #3 )#,45.04;#(
! +,#(#-./0 #3 6(3#$-4;#(
! +,#(#-./0 #3 !@/,.45.04;#(

10/24/11 rof.rasad !oshl
A.0/,#(#-./0 23 !,45/
10/24/11 rof.rasad !oshl
ulseconomles refer Lo Lhe dlsadvanLages
suered by a rm when lL expands lLs
producuon beyond Lhe sLage of opumum
comblnauon of facLors or beyond Lhe level of
opumum ouLpuL. lollowlng are such
B.0/,#(#-./0 #3 0,45/?
! When Lhe rm expands producuon beyond
cerLaln level. lL develops many complexlues.
Lecuve managemenL & smooLh co-ordlnauon
aL dlerenL levels become dlmculL.
10/24/11 rof.rasad !oshl
! 8eyond Lhe sLage of opumum producuon, Lhe
emclency of machlnery & equlpmenL decllnes.
1hls ls called Lhe Lechnlcal dlseconomy
! 8eyond cerLaln polnL, Lhe rm ls compelled Lo
pay ".*"/$ C4*/0 %# $/,$'.% 54>#'$.
Consumpuon of raw maLerlal becomes cosLller.
lL faces Lhe problem of shorLage of fuel, power,
nance eLc.
10/24/11 rof.rasad !oshl

1hank you!
10/24/11 rof.rasad !oshl