STUDY TO ENLIGHTEN YOURSELF
MODERN THEORY OF COST Modern economists including Stigler, Andrews and Friedman have questioned the validity of U-shaped cost curves both theoretical as well as on empirical grounds. Also the long run costs in modern theory are not U- shaped but L- shaped. The Modern theory suggests the existence of ‘built- in- reserve capacity ‘which imparts…
TRADITIONAL THEORY OF COST Traditional theory distinguishes between the short run and the long run. The short run is the period during which some factors is fixed; usually capital equipment and entrepreneurship are considered as fixed in the short run. The long run is the period over which all factors become variable. SHORT-RUN TRADITIONAL THEORY…
WHAT IS COST? Cost refers to an amount to be paid or given up for acquiring any resource or service. In economics, cost can be defined as a monetary valuation of efforts, material, resources, time and utilities consumed, risks incurred, and opportunity forgone in the production of a good or service. CONCEPT OF COSTS There…
ECONOMIES AND DISECONOMIES OF SCALE Economies and Diseconomies of scale arises due to law of returns to scale. Economies of scale are defined as the cost advantages that an organization can achieve by expanding its production in the long run. In other words, these are the advantages of large scale production of the organization. The…
LAW OF RETURNS TO SCALE Returns to scale tells how production changes in response to an increase in all inputs in the long run. An industry can exhibit constant returns to scale, increasing returns to scale or decreasing returns to scale. In the long- run, there is no fixed factor; all factors are variable. The…
LAW OF CONSTANT RETURNS The law of constant returns is also empirically valid and operates in the transitional stage between the Law of Diminishing Returns as well as The Law of Increasing Returns. According to the Law, when in order to increase output, units of labour and capital are increased; output and cost also increase…
LAW OF DIMINISHING RETURNS Diminishing returns, also called law of diminishing returns or principle of diminishing marginal productivity, is an economic law stating that if one input in the production of a commodity is increased while all other inputs are held fixed, a point will eventually be reached at which additions of the input yield progressively smaller, or…
LAW OF INCREASING RETURNS The law of Increasing Returns is also known as the Law of Diminishing Costs. According to this law when more and more units of variable factors are employed while other factors are kept constant, there will be an increase of production at a higher rate. This law is applicable to all different industries…
RELATIONSHIP BETWEEN TP AP AND MP Product or output refers to the volume of goods produced by a firm or an industry during a specified period of time. The concept of product can be considered from three different angles – Total Product, Marginal Product, Average Product. TOTAL PRODUCT (TP) Total Product (TP) refers to the…
GST COUNCIL GST Council is an apex member committee to modify, reconcile or to procure any law or regulation based on the context of goods and services tax in India. The GST council is the key decision-making body that will take all important decisions regarding the GST. The Goods and Service Tax Council dictates tax rate, tax…
