Production costs in the long term, their nature and impact on profit

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2018-03-18 13:11:24

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For a long period of work for different reasons, the conditions of activity of the enterprise, the structure of its resources may change. Scenario, these changes can also be very diverse, for example, the firm can change production, purchase new equipment, lease the available production capacity. All this in varying degrees, affect production costs in the long run. The magnitude of the produced transformations at the enterprise leads, respectively, and a variety of types of costs.

And There is a definite pattern of dependence of costs from the scale of the ongoing transformation. For example, a permanent increase in the capacity to objectively entails an increase in average total costs. When considering long term average costs usually vary depending on zoom, while their minimum option shows the optimal value of production. There is a minimum and the parameter that determines the production costs of the firm. It represents a minimum volume of production at which the company can reduce its average cost of production in the long term. Efficiency under this option is determined by the dependence: the more the company produces products, the lower will be average costs.

The optimal values of production costs, which ensures market stability of the company, is one of the main objectives of its economic activities. To this provision was sustainable, it is necessary to understand the nature of the costs, present them to the classification structure and to know how vzaimootnoshenia production costs and profit of the company.

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In a simple manner, the production costs represent the resources consumed by an enterprise or a firm in the process of creating marketable products. In this context, all production costs in the long term should be considered as payment for the factors of production. These include depreciation, cost of materials, wages of employees and much more. In sales, the company receives revenue from which goes to offset the costs associated with the production, another part of the proceeds goes to what organize production.

The Modern economists-researchers consider production costs in the long term from the point of view of the entrepreneur, and not, as is assumed, for example, the Marxist interpretation. According to modern approach, these costs differ from those associated with capital outlay, and represent only those costs that arise in the production process of concrete products.

Distribution Costs represent the costs for the sale of goods. They are classified on the net (which are directly related to the process of purchase and sale) and secondary (related to infrastructure, within which is provided the implementation of the goods). Note that additional, as such, do not increase the magnitude of the cost, and can be redeemed only after the sale of marketable products from the resulting profits. Additional, these costs are called that because they serve as objective appendage of net profit. The current stage of development of economic science assumes that an enterprise or a firm expects to generate income from all, without exception, expenses which they may have in the course of its production activities in order to ensure the positive development of business and sustainability markets in the context of growing competition.


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Alin Trodden - author of the article, editor
"Hi, I'm Alin Trodden. I write texts, read books, and look for impressions. And I'm not bad at telling you about it. I am always happy to participate in interesting projects."

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