How to find marginal cost formula example. How to calculate variable costs: examples, calculation formula

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10.11 Types of costs

When we looked at the periods of production of a firm, we said that in the short run the firm can change not all the factors of production used, while in the long run all factors are variable.

It is precisely such differences in the possibility of changing the volume of resources when changing production volumes that forced economists to divide all types of costs into two categories:

1. fixed costs;
2. variable costs.

Fixed costs(FC, fixed cost) are those costs that cannot be changed in the short term, and therefore they remain the same with small changes in the volume of production of goods or services. Fixed costs include, for example, rent for premises, costs associated with maintaining equipment, payments to repay previously received loans, as well as all kinds of administrative and other overhead costs. Let's say it is impossible to build a new oil refining plant within a month. So if next month oil company plans to produce 5% more gasoline, this is only possible at existing production facilities and with existing equipment. In this case, a 5% increase in output will not lead to an increase in the costs of servicing equipment and maintaining production facilities. These costs will remain constant. Only the amounts paid will change wages, as well as costs for materials and electricity (variable costs).

The fixed cost graph is a horizontal line.

Average fixed costs (AFC, average fixed cost) are fixed costs per unit of output.

Variable costs (VC, variable cost) are those costs that can be changed in the short term, and therefore they grow (decrease) with any increase (decrease) in production volumes. This category includes costs for materials, energy, components, and wages.

Variable costs show the following dynamics depending on the volume of production: up to a certain point they increase at a killing pace, then they begin to increase at an increasing pace.

Schedule variable costs looks like this:

Average variable costs (AVC, average variable cost) are variable costs per unit of output.

The standard Average Variable Cost graph looks like a parabola.

The sum of fixed costs and variable costs is total costs (TC, total cost)

TC = VC + FC

Average total cost (AC, average cost) is the total cost per unit of production.

Also, average total costs are equal to the sum of average fixed and average variable costs.

AC = AFC + AVC

AC graph looks like a parabola

A special place in economic analysis occupy marginal costs. Marginal cost is important because economic decisions typically involve marginal analysis of available alternatives.

Marginal cost (MC, marginal cost) is the increment in total costs when producing an additional unit of output.

Since fixed costs do not affect the increment in total costs, marginal costs are also an increment in variable costs when producing an additional unit of output.

As we have already said, formulas with derivatives in economic problems are used when smooth functions are given, from which it is possible to calculate derivatives. When we are given individual points (discrete case), then we should use formulas with increment ratios.

The marginal cost graph is also a parabola.

Let's plot the marginal cost graph together with the graphs of average variables and average total costs:

The above graph shows that AC always exceeds AVC since AC = AVC + AFC, but the distance between them decreases as Q increases (since AFC is a monotonically decreasing function).

The graph also shows that the MC graph intersects the AVC and AC graphs at their minimum points. To justify why this is so, it is enough to recall the relationship between average and maximum values ​​already familiar to us (from the “Products” section): when the maximum value is below the average, then average value decreases with increasing volume. When the marginal value is higher than the average value, the average value increases with increasing volume. Thus, when the marginal value crosses the average value from bottom to top, the average value reaches a minimum.

Now let’s try to correlate the graphs of general, average, and maximum values:

These graphs show the following patterns.

Incurs when producing an additional unit of output. The decision about the advisability of producing an additional batch of goods is based on a comparison of marginal costs and marginal benefits.

Let's look at the picture:

A comparison of marginal and average costs is absolutely necessary to calculate the optimal scale of production. Direct marginal costs MC and average costs ATC intersect at point B - this point is called balance point. Moving to the right of the equilibrium point leads to a decrease in the firm's profit, because additional costs increase for each unit of output.

How to calculate marginal costs?

The following formula is used to calculate marginal costs:

In this formula, “delta” Q is the increase in the quantity of products produced, and “delta” TC is the increase in the costs required to produce a batch of products.

For calculations, you can use a tool such as an Excel spreadsheet - in this case, calculations occur according to the following algorithm:

1. 1. A table is formed consisting of three columns: the first reflects the quantity of products produced, the second and third - respectively, the fixed and variable costs of its production at different quantities.

1. 2. Fixed and variable costs are calculated for each quantity of output, after which the table is completed with the column total costs (total costs). In the TC column, fixed and variable costs are summed up.

1. 3. After this, you can use the formula that was given above in the article. The table needs to be completed with one more column, which will reflect the marginal costs.

“Delta” TC is calculated as the difference in total costs at a minimum step in the quantity of products produced (circled in red). “Delta” Q will be equal to 1000 in all cases. “Delta” TC will change values:

• 40 – 30 = 10
• 47 – 40 = 7
• 53 – 47 = 6
• 57 – 53 = 4

1. 4. To get a clear idea of ​​how the value of marginal costs is adjusted at different scales of output, you should build a graph.

Calculation of marginal costs gives the company the opportunity to predict, for which it is necessary to compare the lines of marginal costs and proposals.

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Production costs are calculated based on estimate documents. If the company does not generate such documents, then accounting data for the reporting period will be required.

All costs are divided into fixed (their size remains unchanged throughout the entire period) and variable (their size will constantly change depending on the number of goods produced).

In accounting, the company's costs are reflected in the following cost accounts: 20, 23, 26, 25, 29, 21 and 28. To determine the amount of costs for the required period, it is necessary to add up the debit turnover for these accounts. The only exceptions are internal turnover and refinery residues.

Let's look at how production costs are calculated: total, average and marginal.

General costs

The formula for calculating total (total) production costs will be as follows:

Total costs = fixed costs + variable costs.

By calculating such costs, you can find out the size of the total costs for all production. Detailing is carried out by various groups: workshops, product groups, types of goods and other factors.

By analyzing dynamics, you can easily predict the level of production and sales of goods, expected profit or loss, and the need to increase production capacity.

Average costs

To calculate average costs, you must use the following formula:

Average costs = amount of total costs / number of goods produced (volume of work performed).

This indicator, like the previous one, is calculated by the full cost of the product. Thanks to it, you can easily find out the size of the minimum price of a product, as well as establish the effectiveness of investing resources on each unit of product, and also compare the amount of costs with the price level.

Marginal cost

Marginal costs are calculated using the following formula:

Marginal cost = change in total cost / change in production level.

Marginal costs reflect the costs of producing extras. units of goods. Thanks to the indicator of such costs, it is possible to establish the increase in costs for producing additional quantities of goods in the most profitable way. While the amount of fixed costs remains unchanged, the amount of variable costs increases.

Cost link

The size of marginal costs must always be less than the size of total average and costs (per unit of goods). If this ratio is not observed, it means that the company has violated the optimal size.

The size of average costs changes in the same way as the size of marginal costs. It is impossible to increase the quantity of manufactured goods all the time. This is evidenced by the law of diminishing returns. At a certain stage, variable costs, the formula for which was given above, will reach their maximum. After reaching this critical level, an increase in the level of manufactured goods will lead to an increase in all types of costs.

2.3.1. Production costs in a market economy.

Production costs – This is the monetary cost of purchasing the factors of production used. Most cost effective method production is considered to be one in which production costs are minimized. Production costs are measured in value terms based on the costs incurred.

Production costs – costs that are directly associated with the production of goods.

Distribution costs – costs associated with the sale of manufactured products.

The economic essence of costs is based on the problem of limited resources and alternative use, i.e. the use of resources in this production excludes the possibility of using it for another purpose.

The task of economists is to choose the most optimal option for using factors of production and minimizing costs.

Internal (implicit) costs – These are monetary incomes that the company donates, independently using its resources, i.e. These are the income that could be received by the company for independently used resources under the best of conditions. possible ways their applications. Opportunity Cost lost opportunity - the amount of money that is needed to divert a specific resource from the production of good B and use it to produce good A.

Thus, the costs in cash that the company incurred in favor of suppliers (labor, services, fuel, raw materials) are called external (explicit) costs.

Dividing costs into explicit and implicit are two approaches to understanding the nature of costs.

1. Accounting approach: production costs should include all real, actual expenses in cash (salaries, rent, alternative costs, raw materials, fuel, depreciation, social contributions).

2. Economic approach: production costs should include not only actual costs in cash, but also unpaid costs; associated with missed opportunities for the most optimal use of these resources.

Short term(SR) is the period of time during which some factors of production are constant and others are variable.

Constant factors are the overall size of buildings, structures, the number of machines and equipment, the number of firms that operate in the industry. Therefore, the possibility of free access of firms to the industry in the short term is limited. Variables – raw materials, number of workers.

Long term(LR) – the period of time during which all factors of production are variable. Those. During this period, you can change the size of buildings, equipment, and the number of companies. During this period, the company can change all production parameters.

Classification of costs

Fixed costs (F.C.) – costs, the value of which in the short term does not change with an increase or decrease in production volume, i.e. they do not depend on the volume of products produced.

Example: building rent, equipment maintenance, administration salary.

C is the amount of costs.

The fixed cost graph is a straight line parallel to the OX axis.

Average fixed costs (A F C) – fixed costs that fall on a unit of output and are determined by the formula: A.F.C. = F.C./ Q

As Q increases, they decrease. This is called overhead allocation. They serve as an incentive for the company to increase production.

The graph of average fixed costs is a curve that has a decreasing character, because As production volume increases, total revenue increases, then average fixed costs represent an increasingly smaller value per unit of product.

Variable costs (V.C.) – costs, the value of which changes depending on the increase or decrease in production volume, i.e. they depend on the volume of products produced.

Example: costs of raw materials, electricity, auxiliary materials, wages (workers). The main share of costs is associated with the use of capital.

The graph is a curve proportional to the volume of output and increasing in nature. But her character can change. In the initial period, variable costs grow at a higher rate than manufactured products. As the optimal production size (Q 1) is achieved, relative savings in VC occur.

Average variable costs (AVC) – the volume of variable costs that falls on a unit of output. They are determined by the following formula: by dividing VC by the volume of output: AVC = VC/Q. First the curve falls, then it is horizontal and increases sharply.

A graph is a curve that does not start at the origin. The general nature of the curve is increasing. The technologically optimal output size is achieved when AVCs become minimal (i.e. Q – 1).

Total costs (TC or C) – the totality of a firm's fixed and variable costs associated with producing products in the short term. They are determined by the formula: TC = FC + VC

Another formula (function of the volume of production output): TC = f (Q).

Depreciation and amortization

Wear- This is the gradual loss of capital resources of their value.

Physical wear and tear– loss of the consumer qualities of the means of labor, i.e. technical and production properties.

A decrease in the value of capital goods may not be associated with their loss of consumer qualities; then they speak of obsolescence. It is due to an increase in the efficiency of production of capital goods, i.e. the emergence of similar, but cheaper new means of labor that perform similar functions, but are more advanced.

Obsolescence is a consequence of scientific and technological progress, but for the company this results in increased costs. Obsolescence refers to changes in fixed costs. Physical wear and tear is a variable cost. Capital goods last more than one year. Their cost is transferred to finished products gradually as it wears out - this is called depreciation. Part of the revenue for depreciation is formed in the depreciation fund.

Depreciation charges:

Reflect an assessment of the amount of depreciation of capital resources, i.e. are one of the cost items;

Serves as a source of reproduction of capital goods.

The state legislates depreciation rates, i.e. the percentage of the value of capital goods by which they are considered to be worn out during the year. It shows how many years the cost of fixed assets must be reimbursed.

Average Total Cost (ATC) – the sum of the total costs per unit of production output:

ATS = TC/Q = (FC + VC)/Q = (FC/Q) + (VC/Q)

The curve is V-shaped. The production volume corresponding to the minimum average total cost is called the point of technological optimism.

Marginal Cost (MC) – an increase in total costs caused by an increase in production by the next unit of output.

Determined by the following formula: MS = ∆TC/ ∆Q.

It can be seen that fixed costs do not affect the value of MS. And MC depends on the increment of VC associated with an increase or decrease in production volume (Q).

Marginal cost shows how much it would cost the firm to increase output per unit. They decisively influence the firm’s choice of production volume, because This is exactly the indicator that the company can influence.

The graph is similar to AVC. The MC curve intersects the ATC curve at the point corresponding to the minimum value of total costs.

In the short run, the company's costs are fixed and variable. This follows from the fact that the company's production capacity remains unchanged and the dynamics of indicators is determined by the increase in equipment utilization.

Based on this graph, you can build a new graph. Which allows you to visualize the capabilities of the company, maximize profits and view the boundaries of the existence of the company in general.

For making a firm's decision, the most important characteristic is the average value; average fixed costs fall as production volume increases.

Therefore, the dependence of variable costs on the production growth function is considered.

At stage I, average variable costs decrease and then begin to grow under the influence of economies of scale. During this period, it is necessary to determine the break-even point of production (TB).

TB is the level of physical sales volume over an estimated period of time at which revenue from product sales coincides with production costs.

Point A – TB, at which revenue (TR) = TC

Restrictions that must be observed when calculating TB

1. The volume of production is equal to the volume of sales.

2. Fixed costs are the same for any volume of production.

3. Variable costs change in proportion to the volume of production.

4. The price does not change during the period for which the TB is determined.

5. The price of a unit of production and the cost of a unit of resources remain constant.

Law of Diminishing Marginal Returns is not absolute, but relative in nature and it operates only in the short term, when at least one of the factors of production remains unchanged.

Law: with the increase in the use of a factor of production, while the rest remain unchanged, sooner or later a point is reached, starting from which the additional use of variable factors leads to a decrease in the increase in production.

The operation of this law presupposes the unchanged state of technical and technological production. And so technical progress may change the scope of this law.

The long-run period is characterized by the fact that the firm is able to change all the factors of production used. During this period variable character of all used production factors allows the company to use the most optimal combinations of them. This will affect the magnitude and dynamics of average costs (costs per unit of production). If a firm decides to increase production volume, but by initial stage(ATS) will first decrease, and then, when more and more new capacities are involved in production, they will begin to increase.

The graph of long-term total costs shows seven different options (1 – 7) for the behavior of ATS in short-term periods, because The long-term period is the sum of the short-term periods.

The long-run cost curve consists of options called stages of growth. In each stage (I – III) the company operates in the short term. The dynamics of the long-run cost curve can be explained using economies of scale. The company changes the parameters of its activities, i.e. the transition from one type of enterprise size to another is called change in scale of production.

I – in this time interval, long-term costs decrease with an increase in the volume of output, i.e. there are economies of scale – positive effect scale (from 0 to Q 1).

II – (this is from Q 1 to Q 2), at this time interval of production, the long-term ATS does not react to an increase in production volume, i.e. remains unchanged. And the firm will have a constant effect from changes in the scale of production (constant returns to scale).

III – long-term ATC increases with an increase in output and there is damage from an increase in the scale of production or diseconomies of scale(from Q 2 to Q 3).

3. IN general view profit is defined as the difference between total revenue and total costs for a certain period of time:

SP = TR –TS

TR ( total revenue) - the amount of cash received by a company from the sale of a certain amount of goods:

TR = P* Q

AR(average revenue) is the amount of cash receipts that accrue per unit of products sold.

Average revenue is equal to the market price:

AR = TR/ Q = PQ/ Q = P

M.R.(marginal revenue) is the increase in revenue that arises from the sale of the next unit of production. In condition perfect competition it is equal to the market price:

M.R. = ∆ TR/∆ Q = ∆(PQ) /∆ Q =∆ P

In connection with the classification of costs into external (explicit) and internal (implicit) it is assumed various concepts profit.

Explicit costs (external) are determined by the amount of expenses of the enterprise to pay for purchased factors of production from outside.

Implicit costs (internal) determined by the cost of resources owned by a given enterprise.

If we subtract external costs from total revenue, we get accounting profit - takes into account external costs, but does not take into account internal ones.

If internal costs are subtracted from accounting profit, we get economic profit.

Unlike accounting profit, economic profit takes into account both external and internal costs.

Normal profit appears when the total revenue of an enterprise or firm is equal to total costs, calculated as alternative costs. The minimum level of profitability is when it is profitable for an entrepreneur to run a business. “0” - zero economic profit.

Economic profit(clean) – its presence means that resources are used more efficiently at a given enterprise.

Accounting profit exceeds the economic value by the amount of implicit costs. Economic profit serves as a criterion for the success of an enterprise.

Its presence or absence is an incentive to attract additional resources or transfer them to other areas of use.

The company's goals are to maximize profit, which is the difference between total revenue and total costs. Since both costs and income are a function of production volume, the main problem for the company becomes determining the optimal (best) production volume. A firm will maximize profit at the level of output at which the difference between total revenue and total cost is greatest, or at the level at which marginal revenue equals marginal cost. If the firm's losses are less than its fixed costs, then the firm should continue to operate (in the short term); if the losses are greater than its fixed costs, then the firm should stop production.

Certain costs, which do not depend at all on changes in production volume. They can only depend on time. At the same time, variables and permanent costs in sum determine the size of the total costs.

You can also have fixed costs if you derive this indicator from the formula that determines: Revenue = Fixed costs - Variable (total) costs. That is, based on this formula, we get: Fixed costs = Revenue + Variable (total) costs.

Sources:

• Average variable costs

Costs play a big role in business development, because they directly affect profits. In modern economics, there are two types: fixed and variable costs. Their optimization allows you to increase the efficiency of the enterprise.

To begin with, it is necessary to define the short-term and long-term periods. This will allow you to better understand the essence of the issue. In the short run, factors of production can be constant or variable. In the long run, they will only be variables. Let's say the building is . In the short term, it will not change in any way: the company will use it to, for example, place machines. However, in the long term, the company can buy a more suitable building.

Fixed costs

Fixed costs are those that do not change in the short run even if production increases or decreases. Let's say the same building. No matter how many goods are produced, the rent will always be the same. You can work even the whole day, the monthly payment will still remain unchanged.

To optimize fixed costs it is necessary comprehensive analysis. Depending on the specific unit, solutions may vary significantly. If we're talking about about rent for a building, then you can try to reduce the price for accommodation, occupy only part of the building so as not to pay for everything, etc.

Variable costs

It is not difficult to guess that variables are costs that can change depending on the decrease or increase in production volumes in any period. For example, to make one chair you need to spend half a tree. Accordingly, to make 100 chairs, you need to spend 50 trees.

It is much easier to optimize variable costs than fixed ones. Most often, it is simply necessary to reduce the cost of production. This can be achieved, for example, by using cheaper materials, upgrading technology or optimizing the location of workplaces. Let’s say that instead of oak, which costs 10 rubles, we use poplar, which costs 5 rubles. Now, to produce 100 chairs you need to spend not 50 rubles, but 25.

Other indicators

There are also a number of secondary indicators. Total costs are a combination of variable and fixed costs. Let’s say that for one day of renting a building, an entrepreneur pays 100 rubles and produces 200 chairs, the cost of which is 5 rubles. Total costs will be equal to 100+(200*5)=1100 rubles per day.

Beyond that, there are plenty of averages. For example, average fixed costs (how much you need to pay for one unit of production).