Explain different concept of the cost of production
Answers
Explanation:
The cost concepts which are relevant to business operations and decisions can be studied on the basis of their purpose, under two overlapping categories:
(i) Concepts used for accounting purposes, and
(ii) Concepts used in economic analysis of the business activities. Let us discuss here some important concepts of the two categories.
A. Some Accounting Cost Concepts:
1. Opportunity Cost and Actual Cost:
Opportunity cost refers to the loss of earnings due to opportunities foregone due to scarcity of resources. If resources were unlimited, there would be no need to forego any income-yielding opportunity and, therefore, there would be no opportunity cost. Resources are scarce but have alternative uses with different returns. Incomes maximizing resource owners put their scarce resources to their most productive use and forego the income expected from the second best use of the resources.