cost of living

Examples of cost of living in the following topics:

• Cost-Benefit Analysis

  • Benefits and costs are expressed in monetary terms, and are adjusted for the time value of money, so that all flows of benefits and costs over time are expressed on a common basis in terms of their net present value.
  • The benefits side of the analysis might include time savings for passengers who can now avoid traffic, an increase in the number of passenger trips (as more people could now use the road), and lives saved by dint of fewer car accidents.
  • The cost side of the analysis would include the cost of land that must be acquired prior to construction, construction, and maintenance.
  • The benefits of a highway expansion project might include time savings for passengers, additional passenger trips, and saved lives.
  • Explain how to determine the net cost/benefit of providing a public good

• Average and Marginal Cost

  • It is the cost of producing one more unit of a good.
  • Marginal cost includes all of the costs that vary with the level of production.
  • The amount of marginal cost varies according to the volume of the good being produced.
  • An example of calculating marginal cost is: the production of one pair of shoes is $30.
  • The marginal cost of producing the second pair of shoes is $10.

• Types of Costs

  • Variable costs change according to the quantity of goods produced; fixed costs are independent of the quantity of goods being produced.
  • It consists of variable costs and fixed costs.
  • Total cost is the total opportunity cost of each factor of production as part of its fixed or variable costs .
  • Variable costs are also the sum of marginal costs over all of the units produced (referred to as normal costs).
  • An example of a fixed cost would be the cost of renting a warehouse for a specific lease period.

• Economic Costs

  • An example of economic cost would be the cost of attending college.
  • So, the economic cost of college is the accounting cost plus the opportunity cost.
  • An example of economic cost would be the cost of attending college.
  • So, the economic cost of college is the accounting cost plus the opportunity cost.
  • Cost curves: a graph of the costs of production as a function of total quantity produced.

• Externality Impacts on Efficiency

  • An externality is a cost or benefit that results from an activity or transaction and affects a third party who did not choose to incur the cost or benefit .
  • Manufacturing plants emit pollution which impacts individuals living in the surrounding areas.
  • An example of a positive externality would be an individual who lives by a bee farm.
  • Externalities directly impact efficiency because the production of goods is not efficient when costs are incurred due to damages.
  • It also shows the economic costs that are associated with externalities.

• Cost of capital

  • The cost of capital refers to the cost of the money used to pay for the capital.
  • In order to determine a company's cost of capital, the cost of debt and the cost of equity must be calculated.
  • One way of combining the cost of debt and equity to generate a single cost of capital number is through the weighted-average cost of capital (WACC).
  • where D is the value of debt in the company, E is the value of equity, rd is the cost of debt, t is the tax rate, and re is the cost of equity.
  • The cost of capital is the cost of the money used to finance the plant.

• The Supply Curve in Perfect Competition

  • In economics, a cost curve is a graph that shows the costs of production as a function of total quantity produced.
  • In a free market economy, firms use cost curves to find the optimal point of production (minimizing cost).
  • The various types of cost curves include total, average, marginal curves.
  • Some of the cost curves analyze the short run, while others focus on the long run.
  • When a table of costs and revenues is available, a firm can plot the data onto a profit curve.

• Natural Monopolies

  • The total cost of the natural monopoly is lower than the sum of the total costs of two firms producing the same quantity .
  • A natural monopoly's cost structure is very different from that of most industries.
  • Along with this, the average cost of production decreases and then increases.
  • For both of these, fixed costs of building the necessary infrastructure are high.
  • The total cost of the natural monopoly's production is lower than the sum of the total costs of two firms producing the same quantity.

• Costs and Production in the Short-Run

  • Often the producer will know the costs at a few levels of output and must estimate or calculate the production function in order to make decisions about how many units of the variable input to use or altering the size of the plant (fixed input).
  • Fixed Cost (FC) is the quantity of the fixed input times the price of the fixed input.
  • Variable Cost (VC) is the quantity of the variable input times the price of the variable input.
  • Total Cost (TC) is the sum of the FC and VC.
  • Average Total Cost (AC or ATC) is the total cost per unit of output.

• Difference Between Economic and Accounting Profit

  • Economic profit consists of revenue minus implicit (opportunity) and explicit (monetary) costs; accounting profit consists of revenue minus explicit costs.
  • Wages paid to workers, rent paid to a landowner, and material costs paid to a supplier are all examples of explicit costs.
  • In contrast, implicit costs are the opportunity costs of factors of production that a producer already owns.
  • The implicit cost of that natural resource is the potential market price the firm could receive if it sold it as lumber instead of using it for paper production.
  • These consist of the explicit costs a firm has to maintain production (for example, wages, rent, and material costs).