Learning objectives

To comprehend the relevance of cost concept in decision making, To exemplify the behaviuor of costs in the short run the long run, To identify reasons for the emergence of economies of scale and scope, To estimate a cost function and highlight its usefulness in managerial decisions, To understand the significance of break even analysis, To state the determinants of supply. 

Under production analysis, we discussed about the input output relationship in terms of physical relationships. In fact, prudent decisions about optimal output and optimal prices to be charged require an understanding of relationship between output rate of the firm and costs. Managerial decisions with respect to quotation of prices, efficacy of a product line, change in volume of output, and use of excess capacity depends on the cost analysis. Efficient resource combinations to produce a specific output rate illustrated in the previous chapter can be translated into cost data. 

COST CONCEPTS       

Cost distinctions help the manager to decide amongst the alternative courses of action. Knowledge of various cost concepts is crucial for managerial decisions. 

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