Variable cost avc. Average and marginal costs - quantities for finding the optimal volume of output

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

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

Average costs are further divided into average fixed costs and average variable costs.

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

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

Unlike average fixed costs, average variable costs can both decrease and increase as output increases, which is explained by the dependence of total variable costs on output. Average variable costs reach their minimum at the volume that provides the maximum value of the average product

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

ATC = TC/Q = FC+VC/Q

marginal cost is the increase in total costs caused by an increase in output per unit of output.

Curve MC intersects AVC and ATC at points corresponding to the minimum value of the average variables and average total costs.

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

The main feature of costs in the long run is the fact that they are all variable - the firm can increase or decrease capacity, and it also has enough time to decide to leave this market or enter it by moving from another industry. Therefore, in the long run, they do not single out average fixed and average variable costs, but analyze the average cost per unit of output (LATC), which in essence are both average variable costs.

Depreciation of fixed assets (funds ) - a decrease in the initial cost of fixed assets as a result of their wear and tear in the production process (physical wear) or due to the obsolescence of machines, as well as a decrease in the cost of production in the context of an increase in labor productivity. Physical deterioration fixed assets depends on the quality of fixed assets, their technical improvement (design, type and quality of materials); features of the technological process (speed and cutting force, feed, etc.); the time of their action (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 for fixed assets and their maintenance, from the qualifications of workers.

Obsolescence- 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. The obsolescence of means of labor means that they are physically suitable, but do not justify themselves economically. This depreciation of fixed assets does not depend on their physical depreciation. A physically fit machine can be so morally obsolete that its operation becomes economically unprofitable. Both physical and moral deterioration leads to a loss of value. Therefore, each enterprise should ensure the accumulation of funds (sources) necessary for the acquisition and restoration of definitively depreciated fixed assets. Depreciation(from the middle - century. lat. amortisatio - redemption) is: 1) the gradual depreciation of funds (equipment, buildings, structures) and the transfer of their value in parts to manufactured products; 2) 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 at the established rates depreciation charges. The accrued depreciation amounts are included in the cost of products or distribution costs, and at the same time, due to 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 to the determination of sources and amounts of financing for capital investments and capital repairs of fixed assets. depreciable property recognized as property, results of intellectual activity and other objects of intellectual property that are owned by the taxpayer and are used by him to generate income and the cost of which is repaid by accruing depreciation. Depreciation deductions - accruals with subsequent deductions, reflecting the process of gradually transferring the value of labor instruments as they wear out and obsolescence to the cost 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 for intangible assets (intellectual property). Depreciation deductions are made according to established depreciation rates, their amount is set for a certain period for a specific type of fixed assets (group; subgroup) and is usually expressed as a percentage per year of depreciation to their book value. Sinking fund - a source of capital repairs of fixed assets, capital investments. Formed from depreciation charges. Depreciation task (depreciation) - to allocate the cost of durable tangible assets to costs over the expected life based on the application of systematic and rational records, i.e. it is a process of distribution, not evaluation. There are several important points in this definition. First, all durable tangible assets other than land have a finite life. Due to the limited life of these assets, the cost of these assets must be allocated to costs over all the years of their operation. The two main reasons for the limited life of assets are depreciation and obsolescence (obsolescence). Periodic repairs and careful maintenance can keep buildings and equipment in good condition and greatly extend their life, but eventually every building and every machine must fall into disrepair. The need for depreciation cannot be eliminated by regular repairs. Obsolescence is the process by which assets do not meet modern requirements due to progress in the development of technology and for other reasons. Even buildings often become obsolete before they physically wear out. Second, depreciation is not a cost appraisal process. Even if the market price of a building or other asset may rise as a result of a good deal and specific market conditions, depreciation should still be accrued (accounted for), because it is a consequence of the allocation of previously incurred costs, and not a valuation. Determining the amount of depreciation for the reporting period depends on: the initial cost of objects; their salvage value; depreciable cost; expected useful life.

In the center of the classification of costs is the relationship between the volume of production and costs, the price of a given type of goods. Costs are divided into independent and dependent on the volume of production.

fixed costs do not depend on the value of production, exist at zero volume of production. These are the previous obligations of the enterprise (interest on loans, etc.), taxes, depreciation, payment for security, rent, equipment maintenance costs at zero production volume, salaries of management personnel, etc. The concept of fixed costs can be illustrated in Fig. one.

Rice. one. Fixed costs Chuev I.N., Chechevitsyna L.N. Enterprise economy. - M.: ITK Dashkov i K - 2006. - 225p.

Let's plot the quantity of output (Q) on the abscissa axis, and the costs (C) on the ordinate axis. Then the line of fixed costs will be a constant parallel to the x-axis. It is designated FC. Since with an increase in the volume of production, fixed costs per unit of production decrease, the curve of average fixed costs (AFC) has a negative slope (Fig. 2). Average fixed costs are calculated by the formula: AFC = FС/Q.

They depend on the quantity of products produced, they consist of the costs of raw materials, materials, wages for workers, etc.

As the optimal output volumes are reached (at point Q1), the growth rate of variable costs decreases. However, further expansion of production leads to an acceleration in the growth of variable costs (Fig. 3).

Rice. 3.

The sum of fixed and variable costs forms gross costs- the amount of cash costs for the production of a certain type of product.

The distinction between fixed and variable costs is essential for every businessman. Variable costs are costs that an entrepreneur can control, the value of which can be changed over a short period of time by changing the volume of production. On the other hand, fixed costs are obviously under the control of the firm's management. Such costs are mandatory and must be paid regardless of the volume of production 11 See: McConnell K.R. . 11th ed. - T. 2. - M .: Republic, - 1992, p. 51..

To measure the cost of producing a unit of output, the categories of average, average fixed and average variable costs are used. Average cost equal to the quotient of dividing the gross cost by the amount of output. determined by dividing fixed costs by the quantity of goods produced.

Rice. 2.

Determined by dividing the variable costs by the volume of production:

AVC = VC/Q

When the optimal size of production is reached, the average variable costs become minimal (Fig. 4).

Rice. four.

Average variable costs play an important role in the analysis of the economic state of the company: its equilibrium position and development prospects - expansion, reduction in production or exit from the industry.

General costs - the total of fixed and variable costs of a firm TC = FC + VC).

Graphically, the total costs are depicted as a result of the summation of the curves of fixed and variable costs (Fig. 5).

Average total cost is the quotient of total cost (TC) divided by output (Q). (Sometimes the average total cost of ATS in the economic literature is referred to as AC):

AC (ATC) = TC/Q.

Average total cost can also be obtained by adding average fixed and average variable costs:

Rice. 5.

Graphically, average costs are represented by the summation of the curves of average fixed and average variable costs and have a Y-shape (Fig. 6).

Rice. 6.

The role of average costs in the activities of the company is determined by the fact that their comparison with the price allows you to determine the amount of profit, which is calculated as the difference between total revenue and total costs. This difference serves as a criterion for choosing the right strategy and tactics for the firm.

The concepts of total and average costs are not enough to analyze the behavior of the firm. Therefore, economists use another type of cost - marginal.

marginal cost - is the increase in the total cost of producing an additional unit of output.

The category of marginal cost is of strategic importance, since it allows you to show the costs that a firm will have to incur if it produces one more unit of output or save if it reduces production by this unit. In other words, marginal cost is the amount that the firm can directly control.

Marginal cost is obtained as the difference between the production costs n+ 1 units and production costs P product units.

Since when the volume of output changes, the fixed costs FV do not change, the change in marginal cost is determined only by the change in variable costs resulting from the production of an additional unit of output.

Graphically, marginal costs are depicted as follows (Fig. 7).

Rice. 7. Marginal and average costs Chuev I.N., Chechevitsyna L.N. Enterprise economy. - M.: ITK Dashkov i K - 2006. - 228s.

Let us comment on the main relationships between average and marginal costs.

The size of marginal and average costs are extremely important, since they primarily determine the choice of the volume of production by the firm.

MS do not depend on FС , because fc do not depend on the volume of production, and MC are incremental costs.

As long as MC is less than AC, the average cost curve has a negative slope. This means that the production of an additional unit of output reduces the average cost.

When MC equals AC, this means that average costs have stopped decreasing, but have not yet begun to increase. This is the point of minimum average cost (AC = min).

5. When MC becomes larger than AC, the average cost curve goes up, indicating an increase in average cost as a result of the production of an additional unit of output.

6. The MC curve intersects the AVC curve and the AC curve at the points of their minimum values ​​(Fig. 7).

Under average refers to the costs of the plant for the production and sale of a unit of goods. Allocate:

* average fixed costs A.F.C., which are calculated by dividing the firm's fixed costs by the volume of production;

* average variable costs AVC, calculated by dividing the variable costs by the volume of production;

* average gross costs or the total cost of a unit of ATS product, which are defined as the sum of average variable and average fixed costs or as a quotient of dividing gross costs by output (their graphical expression in Appendix 3).

* according to the methods of accounting and grouping costs, they are divided into simple(raw materials, materials, wages, depreciation, energy, etc.) and complex, those. collected in groups either by functional role in the production process or by the place of costs (shop expenses, general factory expenses, etc.);

* according to the terms of use in production, everyday, or current, costs and lump sum, one-time costs incurred less than once a month and marginal cost is used for economic cost analysis.

Average total cost (ATC) is the total cost per unit of output that is commonly used to compare against price. They are defined as the quotient of total costs divided by the number of units of output produced:

TS = ATS / Q (2)

(AVC) is an indicator of the cost of a variable factor per unit of output. They are defined as the quotient of gross variable costs divided by the number of units of production and are calculated using the formula:

AVC = VC / Q. (3)

Average fixed costs (AFC) - an indicator of fixed costs per unit of output. They are calculated according to the formula:

AFC=FC/Q. (four)

Graphical dependences of the values ​​of various types of average costs on the volume of output are presented in fig. 2.

Rice. 2

From the data analysis in fig. 2 can be concluded:

1) the value of AFC, which is the ratio of the constant FC to the variable Q (4), is a hyperbola on the graph, i.e. with an increase in production volume, the share of average fixed costs per unit of output decreases;

2) the value of AVC is the ratio of two variables: VC and Q (3). However, variable costs (VC) are almost directly proportional to output (because the more products are planned to be produced, the higher the costs will be). Therefore, the dependence of AVC on Q (volume of production) has the form of an almost straight line parallel to the x-axis;

3) ATC, which is the sum of AFC + AVC, on the graph has the form of a hyperbolic curve, located almost parallel to the AFC line. Thus, as in the case of AFC, the share of average total costs (ATC) per unit of output decreases with increasing output.

Average total costs first fall and then start to rise. Moreover, the ATC and AVC curves are approaching. This is because average fixed costs in the short run decrease as output increases. Therefore, the difference in the height of the ATC and AVC curves at a given output depends on the value of AFC.

In the specific practice of applying cost calculation to analyze the activities of enterprises in Russia and in Western countries, there are both similarities and differences. The category is widely used in Russia cost price, which is the total cost of production and sale of products. Theoretically, the prime cost should include standard production costs, but in practice it includes excess consumption of raw materials, materials, etc. The cost is determined on the basis of adding up economic elements (homogeneous in terms of economic purpose of costs) or by summing up costing items that characterize the direct directions of certain costs.

Both in the CIS and in Western countries, to calculate the cost, a classification of direct and indirect costs (expenses) is used. Direct costs are the costs directly associated with the creation of a unit of goods. Indirect costs are necessary for the general implementation of the production process of this type of product at the enterprise. The general approach does not exclude differences in the specific classification of some articles.

In connection with the volume of output, costs in the short run are divided into fixed and variable.

The constants do not depend on the volume of output (FC). These include: depreciation costs, wages for employees (as opposed to workers), advertising, rent, electricity, etc.

The variables depend on the volume of output (VC). For example, the cost of materials, the wages of the main production workers and others.

Fixed costs (costs) are also present at zero output (therefore, they are never equal to zero). For example, regardless of whether the product is produced or not. You still need to pay rent for the premises. On the graph of the dependence of the value of costs (C) on the volume of production (Q), fixed costs (FC) look like a horizontal straight line, since they are not related to the output (Fig. 1).

Since variable costs (VC) depend on output, the more products are planned to be produced, the more costs need to be incurred for this. If nothing is produced, then there are no costs. Thus, the value of variable costs is in direct positive dependence on the volume of output and on the graph (see Fig. 1) is a curve emerging from the origin.

The sum of fixed and variable costs is equal to the total (gross) costs:

TC=FC+VC.(1)

Based on the above formula, on the graph the curve of total costs (TC) is built parallel to the curve of variable costs, however, it does not start from zero, but from a point on the y-axis. corresponding to the fixed costs. It can also be concluded that with an increase in the volume of production, the total costs grow proportionally (Fig. 1).

All considered types of costs (FC, VC and TC) refer to the entire output.

Rice. one Dependence of total costs (TC) on variables (VC) and constants (FC).

Question 10. Types of production costs: fixed, variable and general, average and marginal costs.

Each firm in determining its strategy focuses on maximizing profits. At the same time, any production of goods or services is unthinkable without costs. The company incurs specific costs for the acquisition of factors of production. At the same time, it will strive to use such a production process in which a given volume of production will be provided at the lowest cost for the factors of production used.

The cost of acquiring the factors of production used is called production costs. Costs are the expenditure of resources in their physical, in-kind form, and costs are the valuation of the costs incurred.

From the point of view of an individual entrepreneur (firm), there are individual production costs, representing the costs of a particular business entity. The costs incurred for the production of a certain volume of some product, from the point of view of the entire national economy, are public costs. In addition to the direct costs of producing a range of products, they include costs for environmental protection, training a skilled workforce, basic R&D, and other costs.

Distinguish between production costs and distribution costs. Production costs are the costs directly associated with the production of goods or services. Distribution costs are the costs associated with the sale of products. They are divided into incremental and net distribution costs. The former include the costs of bringing the manufactured products to the direct consumer (storage, packaging, packaging, transportation of products), which increase the final cost of the goods; the second - the costs associated with changing the form of value in the process of buying and selling, converting it from commodity to monetary (wages of trade workers, advertising costs, etc.), which do not form a new value and are deducted from the value of the goods.

fixed costsTFC These are costs that do not change with changes in the volume of production. The presence of such costs is explained by the very existence of some production factors, so they take place even when the company does not produce anything. On the graph, fixed costs are depicted by a horizontal line parallel to the x-axis (Fig. 1). Fixed costs include the cost of salaries of management personnel, rent payments, insurance premiums, deductions for depreciation of buildings and equipment.

Rice. 1. Fixed, variable and general costs.

variable costsTVC are costs that vary with the volume of production. These include the cost of wages, the purchase of raw materials, fuel, auxiliary materials, payment for transport services, relevant social contributions, etc. Figure 1 shows that variable costs increase as output increases. However, one pattern can be traced here: at first, the growth of variable costs per unit of production growth proceeds at a slow pace (up to the fourth unit of production according to the schedule of Fig. 1), then they grow at an increasing pace. This is where the law of diminishing returns comes into play.

The sum of fixed and variable costs at any given volume of production forms the total cost TC. The graph shows that in order to obtain a curve of total costs, the sum of fixed costs TFC must be added to the sum of variable costs TVC (Fig. 1).

An entrepreneur is interested not only in the total cost of goods or services produced by him, but also in average cost, i.e. firm's costs per unit of output. When determining the profitability or unprofitability of production, average costs are compared with the price.

Average costs are divided into average fixed, average variable and average total.

Average fixed costsA.F.C. - are calculated by dividing the total fixed costs by the number of products produced, i.e. AFC = TFC/Q. Since the value of fixed costs does not depend on the volume of production, the configuration of the AFC curve has a smooth downward character and indicates that with an increase in the volume of production, the amount of fixed costs falls on an ever-increasing number of units of output.

Rice. 2. Curves of average costs of the firm in the short run.

Average variable costsAVC - are calculated by dividing the total variable costs by the corresponding amount of output, i.e. AVC=TVC/Q. Figure 2 shows that average variable costs first decrease and then increase. This is also where the law of diminishing returns comes into play.

Average total costATC - are calculated by the formula ATC = TC/Q. In Figure 2, the average total cost curve is obtained by vertically adding the average constant AFC and the average variable cost AVC. The ATC and AVC curves are U-shaped. Both curves, by virtue of the law of diminishing returns, bend upwards at sufficiently high volumes of production. With an increase in the number of employed workers, when constant factors are unchanged, labor productivity begins to fall, causing a corresponding increase in average costs.

The category of variable costs is very important for understanding the behavior of a firm. marginal costMC is the additional cost associated with the production of each subsequent unit of output. Therefore, MC can be found by subtracting two adjacent gross costs. They can also be calculated using the formula MC = TC/Q, where Q = 1. If fixed costs do not change, then marginal costs are always marginal variable costs.

Marginal cost shows the change in costs associated with a decrease or increase in the volume of production Q. Therefore, comparing MC with marginal revenue (revenue from the sale of an additional unit of output) is very important for determining the behavior of a firm in market conditions.

Rice. 3. Relationship between productivity and costs

Figure 3 shows that there is an inverse relationship between the dynamics of marginal product (marginal productivity) and marginal costs (as well as the average product and average variable costs). As long as marginal (average) product rises, marginal (average variable) costs will fall and vice versa. At the points of maximum value of the marginal and average products, the value of marginal MC and average variable costs AVC will be minimal.

Consider the relationship between total TC, average AVC, and marginal MC costs. To do this, we supplement Fig. 2 with the marginal cost curve and combine it with Fig. 1 in one plane (Fig. 4). An analysis of the configuration of the curves allows us to draw the following conclusions that:

1) at the point a, where the marginal cost curve reaches its minimum, the total cost curve TC changes from convex to concave. This means that after the dot a with the same increments of the total product, the magnitude of changes in total costs will increase;

2) the marginal cost curve intersects the curves of average total and average variable costs at the points of their minimum values. If marginal cost is less than average total cost, the latter decrease (per unit of output). Hence, in Figure 4a, the average total cost will fall as long as the marginal cost curve passes below the average total cost curve. Average total cost will rise where the marginal cost curve is above the average total cost curve. The same can be said for the marginal and average variable cost curves MC and AVC. As for the curve of average fixed costs AFC, then there is no such dependence, because the curves of marginal and average fixed costs are not related to each other;

3) Marginal cost is initially lower than both average total and average costs. However, due to the operation of the law of diminishing returns, they exceed both of them as output increases. It becomes obvious that further expansion of production, increasing only labor costs, is economically unprofitable.

Fig.4. The relationship of total, average and marginal production costs.

Changes in resource prices and production technologies lead to a shift in cost curves. Thus, an increase in fixed costs will lead to an upward shift in the FC curve, and since fixed costs AFC are an integral part of the total, the latter curve will also shift upward. As for the curves of variables and marginal costs, the growth of fixed costs will not affect them in any way. An increase in variable costs (for example, a rise in the cost of labor) will cause an upward shift in the curves of average variables, total and marginal costs, but will not affect the position of the fixed cost curve.

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

Fixed factors include fixed assets, the number of firms operating in the industry. In this period, the company has the opportunity to vary only the degree of utilization of production capacities.

Long term is the length of time during which all factors are variable. In the long run, the 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, as well as administrative costs.

Because As production increases, total revenue increases, then average fixed costs (AFC) are a decreasing value.

Variable Costs (VC) - These are costs, the value of which varies 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 company.

Total costs are a function of the output produced:

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

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

The average total cost is: ATC = TC/Q or AFC +AVC = (FC + VC)/Q.

Graphically, ATC can be obtained by summing the AFC and AVC curves.

Marginal Cost (MC) is the increase in total cost due to an infinitesimal increase in production. Marginal cost is usually understood as the cost associated with the production of 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 - the firm can increase or decrease capacity, and it also has enough time to decide to leave this market or enter it by moving from another industry. Therefore, in the long run, they do not single out average fixed and average variable costs, but analyze the average cost per unit of output (LATC), which in essence are both 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 its production volumes. The process of expanding the scale of activities can be conditionally divided into three stages within the analyzed long-term period, three short-term ones, each of which corresponds to different sizes of the enterprise and volumes of products. For each of the three short-term periods, short-term average cost curves can be constructed for different enterprise 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 our 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 one. Moreover, for each of them, you can draw the corresponding graphs of the ATS. That is, we actually get a lot of parabolas, a large set of which will lead to the alignment of the outer line of the graph of average costs, and it will turn into a smooth curve - LATC. In this way, long run average cost curve (LATC) is a curve enveloping an infinite number of curves of short-term average production costs that are in contact with it at their minimum points. The long-run average cost curve shows the lowest cost of producing a unit of output with which any 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 Run Marginal Cost (LMC) show the change in the total cost of the enterprise in connection with a change in the volume of output of finished products 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 relate to each other in the same way as the short-run cost curves: if LMC lies below LATC, then LATC falls, and if LMC lies above laTC, then laTC rises. The rising part of the LMC curve intersects the LATC curve at a minimum point.

Three segments can be distinguished on the LATC curve. On the first of them, long-term average costs are reduced, on the third, on the contrary, they increase. It is also possible that there will be an intermediate segment on the LATC chart with approximately the same level of costs per unit of output for different values ​​of output - Q x . The arcuate nature 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 in scale of production 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 output increases. Increasing returns to scale (positive returns to scale) takes place in a situation where the volume of production (Q x) grows faster than the costs rise, and, consequently, the LATC of enterprises fall. The existence of a positive effect of scale in production explains the downward character of the LATS graph in the first segment. This is explained by the expansion of the scope of activities, which entails:

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

2. The growth of specialization of managerial work. As the size of the enterprise grows, the opportunities to take advantage of the specialization in management increase, when 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 output.

3. Efficient use of capital (means of production). The most efficient, from a technological point of view, equipment is sold in the form of large, expensive kits and requires large production volumes. The use of this equipment by large manufacturers can reduce costs per unit of output. 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 thus uses the resources involved in production more efficiently. Hence the lower cost per unit of output.

The positive effect of scale of production in the long run is not unlimited. Over time, the expansion of the enterprise can lead to negative economic consequences, cause a negative effect of scale in production, when the expansion of the volume of the company's activities is associated with an increase in production costs per unit of output. Negative economies of scale occurs when the cost of production rises faster than its volume and, therefore, LATC rises as output increases. Over time, an expanding company may face negative economic facts due to the complexity of the enterprise management structure - the management floors that separate the administrative apparatus and the production process proper are multiplying, top management is significantly distant from the production process at the enterprise. There are problems associated with the exchange and transfer of information, poor coordination of decisions, bureaucratic red tape. The effectiveness of interaction between individual divisions of the company decreases, management flexibility is lost, 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 functioning of the enterprise decreases, the average production costs increase. Therefore, the firm, when planning its production activities, needs to determine the limits of scaling up production.

In practice, there are cases when the LATC curve is parallel to the abscissa axis at a certain interval - there is an intermediate segment on the graph of long-term average costs 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 output increase at the same rate and, therefore, LATC remains constant at all outputs.

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 economies due to the increase in the scale of production ceases. 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 determined 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 understand, consider the following three cases.

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

2. The LATC curve has a rather long first (downward) segment, on which a positive effect of the scale of production operates (figure b). The minimum value of costs is achieved with large volumes of production (Q c). If the technological features of the production of certain goods generate a long-run average cost curve 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, engineering, automotive, etc. Significant economies of scale are also 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, the negative effect of scale of production quickly begins to work (figure c). In this situation, the optimal volume of production (Q D) is achieved with a small amount of output. In the presence of a large-capacity market, one can assume the possibility of the existence of many small enterprises that produce 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 right combination of factors to achieve a given level of output at the lowest possible cost. To simplify, let's take two variables: labor (measured in hours of work) and capital (measured in hours of use of machinery and equipment). We start from the assumption that both labor and capital can be hired or rented in competitive markets. The price of labor is equal to the wage rate w, and the price of capital is equal to the equipment rent r. We assume that capital is "leased" rather than acquired, and therefore can put all business decisions on a comparative basis. Since labor and capital are attracted on a competitive basis, we assume that the price of these factors is constant. We can then focus on the optimal combination of factors of production without worrying that large purchases will cause a jump in the prices of the factors of production used.

22 Determination of price and output in a competitive industry and under pure monopoly Pure monopoly increases the inequality in the distribution of income in society as a result of monopoly market power and charging higher prices at the same cost than in pure competition, which allows monopoly profit. Under 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 subject to mandatory government regulation under antitrust laws. To study the case of a regulated monopoly, we use graphs of demand, marginal revenue and costs of a natural monopoly, which operates in an industry where economies of scale are manifested at all output volumes. The higher the firm's output, the lower its average cost ATC. In connection with such a change in average costs, the marginal cost of MC at all outputs will be lower than average costs. This is due to the fact that, as we have established, the marginal cost graph intersects the average cost graph at the point of minimum ATC, which is absent in this case. The determination of the optimal volume of production by a monopolist and the possible methods of its regulation will be shown in Fig. Price, marginal revenue (marginal income) 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 = MC and the demand curve for his products, chose the quantity of production Qm and the price Pm, which allowed to get the maximum gross profit. However, the price Pm would exceed the socially optimal price. The socially optimal price is the price that ensures the most efficient distribution of resources in society. As we established earlier in Topic 4, it must correspond to marginal cost (P = MC). On fig. is the price Po at the point of intersection of the demand curve D and the marginal cost curve MC (point O). The output 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 a monopolist are possible: Allocation of state subsidies from the budget of the monopoly industry to cover the gross loss if a fixed price is set at the socially optimal level. Giving the monopoly industry the right to conduct price discrimination in order to obtain additional income from more solvent consumers to cover the loss of the monopolist. Setting a 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 point of intersection of the demand curve D and the ATC average gross cost curve. Output at a regulated price Pn is equal to Qn. The price Pn allows the monopolist to recover all economic costs, including a normal profit.

23. This principle is based on two main points. First, the firm must decide whether it will produce the good. It should be produced if the firm can make either a profit or a loss that is less than fixed costs. Secondly, it is necessary to decide how much goods should be produced. This output must either maximize profits or minimize losses. Formulas (1.1) and (1.2) are used in this technique. 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) PMg - UVCj Y Qj-1 = 0. where Y is the coefficient of change in variable costs. The value of gross variable costs varies depending on the change in volume production. The increase in the amount of variable costs associated with an increase in production by one unit is not constant. It is assumed that variable costs increase at an increasing rate. This is because fixed resources are fixed, and variable resources increase in the process of production growth. Thus, marginal productivity falls and, consequently, variable costs increase at an increasing pace. "To calculate variable costs, it is proposed to apply a formula, and according to the results of statistical analysis, it has been established 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, at which: Rj(Qj) > 0, then Рg = 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 it determines the optimal sales volume at a given price. It is then also compared to the maximum "market" sales volume. The disadvantage of this technique is the same as that of 1.2 - it does not take into account the entire possible composition of the enterprise's products in conjunction with its technological capabilities.