Any company in the process of its work tries to focus on getting the maximum possible profit, but at the same time everyone understands that no production of products or services can exist without certain costs. Thus, the company allocates certain costs for the acquisition of certain factors of production, and at the same time tries to use just such a production process in which the necessary volume of production can be ensured at minimal cost.
What is the cost?
Medium production costs – these are costs necessary for the purchase of used production factors, while it is worth noting the fact that the costs themselves represent the expenditure of physical, natural resources while the costs represent their cost estimate.
From the point of view of an individual company, there are individual average production costs, which are the costs of a particular business entity. All kinds of costs allocated for the manufacture of a product in the national economy are perceived as social costs. It should be noted that in addition to the direct costs of manufacturing a certain range of products, they also include the costs that are required to ensure environmental protection, the training of qualified employees, as well as a number of other necessary expenses.
What are they like?
The modern economy provides for the average costs of circulation and production. The latter represent those costs that directly relate to the production of services or certain goods. The distribution costs relate to the sale of goods already manufactured. They, in turn, are subdivided into net and additional costs.
The additional ones include various expenses necessary for bringing production goods directly to customers, including their storage in a warehouse, competent packaging, packaging and transportation. All these costs affect the final cost of the goods, as they are included in its price initially.
Net costs are expenses that relate to the change in the form of value in the process of sale, as well as the conversion of this form from commodity to cash. This category includes the remuneration of employees, the cost of advertising the product and many others. However, such expenses do not form a new value and are deducted from the price.
Permanent
Fixed average costs are those costs, the value of which will not change depending on how much is currently being produced. The presence of these costs is due to the fact that there are a lot of different production factors, and therefore they are present even when the company is not engaged in the manufacture of any commodity products.
The fixed average costs include salaries for all management personnel, all kinds of rental payments, depreciation of equipment and premises, and various insurance premiums.
Variables
The value of variable costs will vary depending on how much this company is currently producing. This applies to remuneration, the purchase of fuel, raw materials and all necessary auxiliary materials, the necessary social contributions, payment for transport services and many others.However, there is a certain pattern here - initially, the growth of these costs per each unit of production growth is carried out at a fairly slow pace, but subsequently they grow. It is here that the so-called law of diminishing returns manifests itself.
It is worth noting that the sum of variable and average costs at each certain level of volume forms the total costs of the vehicle.
Medium
For the entrepreneur, interest is not only the total amount of costs, manufactured goods or any services, but the average, that is, the costs of the company for the production of each unit of goods, are also important. Determining the profitability of the enterprise, average costs are compared directly with the cost of production.
The average costs themselves are divided into several types:
- medium variables;
- average constants;
- average total costs.
Depending on the type, the calculation form also changes.
Medium Constants
To determine the average fixed costs, you need to divide the total fixed costs by the number of manufactured products. Since the number of fixed costs is independent of the volume of production, the configuration of the AFC curve is characterized by a smooth downward character. This suggests that with an increase in production, the total amount of fixed costs will fall on the total increasing number of units of goods produced.
Average variables
In contrast to the definition of average fixed costs. To calculate them, the total variable costs are divided into the corresponding set of manufactured goods. Moreover, it is worth noting that initially the average variable costs are reduced, but over time they begin to grow, and the law of diminishing returns also makes itself felt here.
Medium General
To calculate the average total costs, the total costs are divided by the number of goods produced. If the number of employed employees increases in the absence of any changes in other factors, labor productivity decreases markedly, resulting in an increase in average costs.
Among other things, in order to understand the behavior of the company, it is extremely important to determine which category the costs belong to. There are four categories in total: fixed, variable, average and marginal costs.
Marginal
Marginal cost represent additional costs directly related to the manufacture of a specific unit of production. For this reason, to determine them, you just need to subtract the two gross costs standing next to them. In the event that the average, constant, variable costs of production do not change in any way, then the marginal ones will always be marginal variable costs.
Fixed average and marginal costs allow you to identify changes in costs related to reduction or increase volume of production. For this reason, a competent comparison of marginal costs with maximum revenue is extremely important in the process of determining the behavior of a company in a market environment.
How do they change?
If there is a change in the cost of resources or of certain production technologies, this ultimately changes the marginal and average variable costs, or rather, their curves are shifted. Thus, an increase in fixed costs ultimately provokes a shift of the curve up, and for the reason that the constant average costs are a separate element of the general, their curve will also shift up. An increase in variable costs will provoke an upward movement of the curves of all average total, but at the same time it will not affect in any way the position of the curves of fixed costs.
MRI
The main integration of national economies into a holistic world economy is the so-called international division of labor. MRI is a specialization of various countries for the production of certain goods, which they will subsequently exchange with each other.
MRI is an objective basis for the international exchange of various services, knowledge and goods, and it is also the basis for the development of scientific, technical, industrial, commercial and other types of cooperation between all world countries, regardless of what level of economic development they have, as well as what is the nature of the social system. Thus, it is the international division of labor that can be called the most important material prerequisite for the establishment of fruitful economic interaction between countries around the planet.
In other words, MRI is the basis for the entire world economy, which ensures its progression in development, and also forms the prerequisites for a more complete manifestation of various economic laws. The essence of MRI is manifested in the dynamic combination of two production processes - its combination and separation.
What's the point?
Any holistic production process cannot be divided into independent phases, separated from each other. Moreover, such a separation is at the same time a combination of several separate industries, as well as all kinds of territorial production complexes, the definition of interaction between countries participating in the MRI system. The isolation and specialization of all kinds of labor activities, as well as their interaction and complementarity, is the main content of MRI.
MRI represents an extremely important stage in the development of the territorial social division of labor between all countries, based on the economically advantageous specialization of production of various countries on certain types of products, and leads to the exchange of manufacturing results between them in some qualitative and quantitative proportions.
How important is it?
MRI plays an extremely important role in conducting processes of expanded production in various fields, and also ensures close interconnection of these processes and creates various appropriate proportions both in the territorial-country and in the industry aspects. In particular, thanks to participation in MRI, countries provide themselves with a lower value of the average costs of certain production areas. As in principle, the division of labor itself, MRI cannot exist without mutual exchange, which is given a separate place in the internationalization of absolutely all social production.
