December 11, 2011

Managerial Economics of Cost - Economics for CEO

There are many managerial decisions that use principles of economics as the standard framework. These economic rules of decision making require estimates cost and revenues. In other words economic analysis requires cost estimates. Cost estimates relevant for management decisions can be produced from orthodox accounting records. Statistical and engineering analysis are used to convert financial accounting figures into cost concepts useful for use in managerial decision problems. The decision model also guides the estimation procedure.

Determinants of Cost Behavior

Prices of input factors
Lot size
Other factors

Cost Concepts

Opportunity costs - Outlay costs
Past costs - Future costs
Short run costs - Long run costs
Variable costs - Constant costs
Traceable costs - Common costs
Out of pocket costs - Book costs
Incremental costs - Sunk costs
Escapable costs - Unavoidable costs
Controllable costs - Non-controllable costs
Replacement costs - Historical costs

Relation Between Cost and Other Variables

Cost and The Rate of Output

Short-run cost output functions
Determination of cost-output functions

Cost and Size of Plant

Cost of Multiple Products

Breakeven Analysis
(Cost - Volume - Profit analysis)

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