Week 1_ Abiodun Macfoy_Business Calculus Series: COST

In this business calculus series, I will present some practical experience in the field of economic analysis and modeling to problem solving by conceptualizing economic theories. It is only proper as a cost engineering blog group that I start-off with issues concerning cost. The series will cover:

• Definition of Cost
  
• Solving an example of real-life problem
  
• Defining a cost function and its properties
  
• Revenue and modeling revenue equations
  
• Profit function
  
• Deriving a profit maximizing price
  

  
   

COST

In general, if the prices are for with the price vector and is the commodity bundle of quantities of goods, then the cost of the commodity bundle is:        

Cost can be defined as the value (expressed quantitatively in monetary terms) of resources or input in the delivery and or production of goods and services (output). Types of cost could include – but not limited to – labor, materials, overhead, and operational cost. Cost comprises of fixed and variable cost. The combination of these two are generally referred to as total cost.

Fixed costs are independent of input cost expended in the delivery of goods and services. Variable cost is the opposite of fixed cost; because it reflects the value of input expended in the production of output.

Total Cost can be modeled using equations. It can be in:

Linear form –

Single variable non linear forms include but not limited to quadratic and exponential equations – (quadratic) and (exponential); where is quantity.

There are several metrics used for analyzing cost. Some commonly used ones are:

Average total cost (ATC), total cost per unit of output or quantity: ; Q=quantity

Marginal Cost (MC), change in total per unit change in output:

My next blog posting will involve problem solving using conceptual approach.

 

Reference:

Calculus for Business, Economics, and Social Science and Life Science

Laurence D. Hoffman, Gerald Bradley

 

Intermediate Microeconomics: A Modern Approach

Hal R. Varian