 module 140 in production analysis we are going to study the production cost why we study the production cost because previously we have studied that the producer is producing with the utilization of the various factors of production efficiently if the total output that he is having it exhausts the available inputs and that was related to the technical efficiency but either it is having any insight that the producer is getting certain form of the profit or it is feasible for the producer to be having a capacity to retain his business so when we have to assess that point when we see that the producer is either going to profit or going to loss or you have such a situation that he is not getting profit or loss and he has to make a decision about his future so the inputs a producer is using because his prices are very difficult or rare that he should be stable in the market and if we look at the inflation these days we can say that the prices of inputs they are fluctuating daily so whenever the prices of the inputs they will be fluctuating then the respective production cost it will be changing and without considering the production cost we cannot assess the profit of our entrepreneurial so when we look at its economic efficiency then we have to look at the production cost in total and we have to look at its different components in short we say that the total cost is basically it is just the submission of all the factors of production giving the contributing share with their prices means if he is using 5 inputs then the amount of every input that is being used is multiplied by its market price and when we will add up these all incurred expenditure of on every input that will give rise to the total cost but now here we have the concept if we look at our inputs nature is different we can say that we have a lot of inputs that are fixed inputs and in the same way we say that there are certain inputs that are variable inputs so when we talk about fixed input or variable input then they can be related to their term of the decision here we can take short or long term time space but in short if we will say that when the producer is having the power of decision related to the utilization of input we can say that it is a variable and when that power is not in his hand because he has taken the decision then after that it becomes a fixed asset so this the narrow difference which is fixed or short but generally if we look at the assets on which once investment has been done which is if a farmer has taken the farm of his land then this is a fixed asset fixed cost and in the second form we call it sunk cost similarly in the industry list if he has put a jean factory or he has put a textile industry or he has put a spinning unit so now he cannot change the plant size of his machinery very quickly so this is his fixed asset but in the same way if other assets are like this if they are once invested then they also come in a fixed form but mostly all those inputs which we change in short duration in which most of the labor can also be done but if we say here many times the entrepreneur hires the labor for a year or in the long term so the permanent labor if we look at it sometimes we take it in fixed form but generally the inputs that we are going to purchase in the form of water we are going to purchase in the form of chemicals, the fertilizer and if we talk about the spinning unit that he is buying the thread or he is buying oil for the machinery or the labor cost payment so all of these will be its variable cost now coming to that if we look at it now so if we explain it in the form of a table so we can say that now in this example if the producer is having this fixed cost which we have said that it is $50 now if we want to tell you in one more concept that many times it happens that a fixed asset like a landlord has bought a tractor similarly if we say that an industrialist has installed a machinery or plant so keeping in view the discounted values if we look at it now it tells us that every machinery or building has a life so looking at that life if it is 10 years or 20 years then we can divide the total asset price by 10 or 20 years and in that we can then further, according to the discounted rate we can also put the incremental rate of some things that every year its price is being devalued and what is its estimate covering inflation so it is not possible that we say that this fixed cost if we look at it after one year that it has bought a 1 crore machinery but since when it has to deal with its accounts then the entrepreneur will not put that 1 crore amount in the same year rather he will share the premium or opportunity cost which if he says that if he has bought that 1 crore building then if its life is 20 years then he will distribute it in the accounts of 20 years and then further include it with its discounted rates now the variable cost here is definitely attached with those inputs which he is purchasing to complete the production function now if we look here the time output units are being produced he has added 50 units fixed cost and added 30 units variable cost and adding these two the input he purchased he gave 3 output units and in this way there was the total cost of 88 now if we look at it again then we go from 3 to 4 output units again the fixed cost is the same for it but now to produce another unit he had to use some incremental part of input system and if we look from here now he has used 50 units compared to 38 and the total cost of his 50 plus 50 that is equal to 100 but for one additional unit of output if we look here the difference between 38 and 50 so additionally he had 12 rupees or 12 dollars amount so if we look here for one unit of output the additional cost added was 12 dollars so in this form if we look here then from 3 units of output to 32 units of output we have a table in which we have this respective all the variable costs are added and we develop the total cost of fixed cost and for each additional unit if it is going to 10 or 22 then we have checked the marginal cost and now if we have to calculate then we can see that in the start this marginal cost was greater and then further at certain points it reduced and then after attaining a certain minimum level it again started to increase so if we look at this now this is higher than low and then again high so this will show us that the marginal cost curve will be higher than low and again higher so if we look at this one then we will see the face of U now if we come to column 6 then it gives now if we look at the average cost column 6 and column 7 if we come to column 8 then it gives the average total cost and if we look at the average total cost then that will be equal to this total cost means this was this 88 divided by this 3 so this column is this 8 this is equal to column 4 divided by column 1 and now where we see that this average total cost this total cost was 100 so it was divided by this 4 so average cost it was 25 so mostly when we are reading the average total cost in our different books then we will only have the name of this in the face of the average cost now if we say that what is the average fixed cost so we have these 2 columns fixed cost and variable cost so when fixed cost is divided by the output and when variable cost is divided by the number of the output it will be giving us the average fixed cost and average variable cost so if we look at all these scenarios then all types of the cost they basically depend upon the number of the outputs produced likewise the revenue when we calculate then price into amount of the revenue output produced so that is why economic profit or economic cost or economic efficiency is just depending on the amount of the output produced thank you