Market Behaviour And Cost Analysis Pdf

market behaviour and cost analysis pdf

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Equilibrium of the Firm: Short-Run and Long-Run

These projects may be dams and highways or can be training programs and health care systems. The idea of this economic accounting originated with Jules Dupuit, a French engineer whose article is still worth reading. This act required that the U. Corps of Engineers carry out projects for the improvement of the waterway system when the total benefits of a project to whomsoever they accrue exceed the costs of that project.

Thus, the Corps of Engineers had created systematic methods for measuring such benefits and costs. The engineers of the Corps did this without much, if any, assistance from the economics profession.

It wasn't until about twenty years later in the 's that economists tried to provide a rigorous, consistent set of methods for measuring benefits and costs and deciding whether a project is worthwhile. Some technical issues of CBA have not been wholly resolved even now but the fundamental presented in the following are well established.

Principles of Cost Benefit Analysis One of the problems of CBA is that the computation of many components of benefits and costs is intuitively obvious but that there are others for which intuition fails to suggest methods of measurement. Therefore some basic principles are needed as a guide. There Must Be a Common Unit of Measurement In order to reach a conclusion as to the desirability of a project all aspects of the project, positive and negative, must be expressed in terms of a common unit; i.

This means that all benefits and costs of a project should be measured in terms of their equivalent money value. A program may provide benefits which are not directly expressed in terms of dollars but there is some amount of money the recipients of the benefits would consider just as good as the project's benefits. For example, a project may provide for the elderly in an area a free monthly visit to a doctor.

The value of that benefit to an elderly recipient is the minimum amount of money that that recipient would take instead of the medical care. This could be less than the market value of the medical care provided.

It is assumed that more esoteric benefits such as from preserving open space or historic sites have a finite equivalent money value to the public.

Not only do the benefits and costs of a project have to be expressed in terms of equivalent money value, but they have to be expressed in terms of dollars of a particular time. This is not just due to the differences in the value of dollars at different times because of inflation. A dollar available five years from now is not as good as a dollar available now.

This is because a dollar available now can be invested and earn interest for five years and would be worth more than a dollar in five years. This called the discounted value or present value of a dollar available t years in the future. When the dollar value of benefits at some time in the future is multiplied by the discounted value of one dollar at that time in the future the result is discounted present value of that benefit of the project.

The same thing applies to costs. The net benefit of the projects is just the sum of the present value of the benefits less the present value of the costs. The choice of the appropriate interest rate to use for the discounting is a separate issue that will be treated later in this paper. For example, improvements in transportation frequently involve saving time. The question is how to measure the money value of that time saved.

The value should not be merely what transportation planners think time should be worth or even what people say their time is worth.

The value of time should be that which the public reveals their time is worth through choices involving tradeoffs between time and money. If people have a choice of parking close to their destination for a fee of 50 cents or parking farther away and spending 5 minutes more walking and they always choose to spend the money and save the time and effort then they have revealed that their time is more valuable to them than 10 cents per minute.

If they were indifferent between the two choices they would have revealed that the value of their time to them was exactly 10 cents per minute. The most challenging part of CBA is finding past choices which reveal the tradeoffs and equivalencies in preferences. For example, the valuation of the benefit of cleaner air could be established by finding how much less people paid for housing in more polluted areas which otherwise was identical in characteristics and location to housing in less polluted areas.

Generally the value of cleaner air to people as revealed by the hard market choices seems to be less than their rhetorical valuation of clean air. Benefits Are Usually Measured by Market Choices When consumers make purchases at market prices they reveal that the things they buy are at least as beneficial to them as the money they relinquish.

Consumers will increase their consumption of any commodity up to the point where the benefit of an additional unit marginal benefit is equal to the marginal cost to them of that unit, the market price. Therefore for any consumer buying some of a commodity, the marginal benefit is equal to the market price. The marginal benefit will decline with the amount consumed just as the market price has to decline to get consumers to consume a greater quantity of the commodity.

The relationship between the market price and the quantity consumed is called the demand schedule. Thus the demand schedule provides the information about marginal benefit that is needed to place a money value on an increase in consumption.

Gross Benefits of an Increase in Consumption is an Area Under the Demand Curve The increase in benefits resulting from an increase in consumption is the sum of the marginal benefit times each incremental increase in consumption. As the incremental increases considered are taken as smaller and smaller the sum goes to the area under the marginal benefit curve. But the marginal benefit curve is the same as the demand curve so the increase in benefits is the area under the demand curve.

As shown in Figure 1 the area is over the range from the lower limit of consumption before the increase to consumption after the increase. Figure 1 When the increase in consumption is small compared to the total consumption the gross benefit is adequately approximated, as is shown in a welfare analysis , by the market value of the increased consumption; i.

There is considerable antipathy in the general public to the idea of placing a dollar value on human life. Economists recognize that it is impossible to fund every project which promises to save a human life and that some rational basis is needed to select which projects are approved and which are turned down. The controversy is defused when it is recognized that the benefit of such projects is in reducing the risk of death.

There are many cases in which people voluntarily accept increased risks in return for higher pay, such as in the oil fields or mining, or for time savings in higher speed in automobile travel. These choices can be used to estimate the personal cost people place on increased risk and thus the value to them of reduced risk.

This computation is equivalent to placing an economic value on the expected number of lives saved. The Analysis of a Project Should Involve a With Versus Without Comparison The impact of a project is the difference between what the situation in the study area would be with and without the project. This that when a project is being evaluated the analysis must estimate not only what the situation would be with the project but also what it would be without the project.

For example, in determining the impact of a fixed guideway rapid transit system such as the Bay Area Rapid Transit BART in the San Francisco Bay Area the number of rides that would have been taken on an expansion of the bus system should be deducted from the rides provided by BART and likewise the additional costs of such an expanded bus system would be deducted from the costs of BART.

In other words, the alternative to the project must be explicitly specified and considered in the evaluation of the project. Note that the with-and-without comparison is not the same as a before-and-after comparison. Another example shows the importance of considering the impacts of a project and a with-and-without comparison.

Suppose an irrigation project proposes to increase cotton production in Arizona. Thus the impact of the project on cotton production in the U.

Cost Benefit Analysis Involves a Particular Study Area The impacts of a project are defined for a particular study area, be it a city, region, state, nation or the world. In the above example concerning cotton the impact of the project might be zero for the nation but still be a positive amount for Arizona. The nature of the study area is usually specified by the organization sponsoring the analysis.

Many effects of a project may "net out" over one study area but not over a smaller one. The specification of the study area may be arbitrary but it may significantly affect the conclusions of the analysis. Double Counting of Benefits or Costs Must be Avoided Sometimes an impact of a project can be measured in two or more ways.

For example, when an improved highway reduces travel time and the risk of injury the value of property in areas served by the highway will be enhanced. The increase in property values due to the project is a very good way, at least in principle, to measure the benefits of a project. But if the increased property values are included then it is unnecessary to include the value of the time and lives saved by the improvement in the highway.

The property value went up because of the benefits of the time saving and the reduced risks. To include both the increase in property values and the time saving and risk reduction would involve double counting.

Decision Criteria for Projects If the discounted present value of the benefits exceeds the discounted present value of the costs then the project is worthwhile. This is equivalent to the condition that the net benefit must be positive.

Another equivalent condition is that the ratio of the present value of the benefits to the present value of the costs must be greater than one. If there are more than one mutually exclusive project that have positive net present value then there has to be further analysis. From the set of mutually exclusive projects the one that should be selected is the one with the highest net present value. If the funds required for carrying out all of the projects with positive net present value are less than the funds available this means the discount rate used in computing the present values is too low and does not reflect the true cost of capital.

The present values must be recomputed using a higher discount rate. It may take some trial and error to find a discount rate such that the funds required for the projects with a positive net present value is no more than the funds available.

This is not valid for several reasons. The magnitude of the ratio of benefits to costs is to a degree arbitrary because some costs such as operating costs may be deducted from benefits and thus not be included in the cost figure.

This is called netting out of operating costs. This netting out may be done for some projects and not for others. However it will not raise the benefit cost ratio which is less than one to above one. An Example To illustrate how CBA might be applied to a project, let us consider a highway improvement such as the extension of Highway into San Jose. The local four-lane highway which carried the freeway and commuter traffic into San Jose did not have a median divider and its inordinate number of fatal head-on collisions led to the name "Blood Alley.

But inevitably there will be more traffic than was carried by the old highway. The following is a highly abbreviated analysis using hypothetical data. The project lowers the cost of a trip and the public responds by increasing the number of trips taken. There is an increase in consumer surplus both for the trips which would have been taken without the project and for the trips which are stimulated by the project.

For trips which would have been taken anyway the benefit of the project equals the value of the time saved times the number of trips. For the trips generated by the project the benefit is equal to one half of the value of the time saved times the increase in the number of trips.

There are week days per year and at six rush hours per weekday there are rush hours per year. This leaves nonrush hours per year. Thus benefit of the reduced risk project is the expected number of lives saved times the implicit value of a life.

The cost of the highway consists of the costs for its right-of-way, its construction and its maintenance. The cost of the right-of-way is the cost of the land and any structures upon it which must be purchased before the construction of the highway can begin. At least part of the right-of- way cost for a highway can be recovered at the end of the lifetime of the highway if it is not rebuilt.

For the example it is assumed that all of the right-of-way cost is recoverable at the end of the thirty-year lifetime of the project.

Market Behaviour And Cost Analysis Notes Pdf

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In this article we will discuss about the short run and long run equilibrium of the firm. The short run is a period of time in which the firm can vary its output by changing the variable factors of production in order to earn maximum profits or to incur minimum losses. The number of firms in the industry is fixed because neither the existing firms can leave nor new firms can enter it. The firm is in equilibrium when it is earning maximum profits as the difference between its total revenue and total cost. The price at which each firm sells its output is set by the market forces of demand and supply. Each firm will be able to sell as much as it chooses at that price. But due to competition, it will not be able to sell at all at a higher price than the market price.

The cost concepts, generally used in the cost behaviour, are total cost, average cost and marginal cost. Total cost is the actual money spends to produce a particular quantity of output. Total cost is the summation of fixed and variable costs. This paper. A short summary of this paper.

Market Behaviour And Cost Analysis Notes Pdf

These projects may be dams and highways or can be training programs and health care systems. The idea of this economic accounting originated with Jules Dupuit, a French engineer whose article is still worth reading. This act required that the U.

Understand the relevance of other types of costs and how they behave under certain circumstances and conditions relevant to time. Basic methods and calculations for determining a project or investment selection, or re-investment strategy. Cost analysis is a comparison of costs. Costs used to prepare financial statements are not the same as those used to control operations.

Whenever you need to make a business decision, invariably you have to weigh one choice against another. Sometimes, the choice is between Project A and Project B, and sometimes the choice is between Project A and doing nothing at all. A cost-benefit analysis is the simplest way of comparing your options to determine whether to go ahead with a project.

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Стратмору едва не удалось сделать предлагаемый стандарт шифрования величайшим достижением АНБ: если бы он был принят, у агентства появился бы ключ для взлома любого шифра в Америке. Люди, знающие толк в компьютерах, пришли в неистовство. Фонд электронных границ, воспользовавшись вспыхнувшим скандалом, поносил конгресс за проявленную наивность и назвал АНБ величайшей угрозой свободному миру со времен Гитлера. Новый стандарт шифрования приказал долго жить. Никому не показалось удивительным, что два дня спустя АНБ приняло Грега Хейла на работу. Стратмор решил, что лучше взять его к себе и заставить трудиться на благо АНБ, чем позволить противодействовать агентству извне.

Есть целые числа, но есть и подсчет в процентах. Это полная каша. - Это где-то здесь, - твердо сказала Сьюзан.

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