Lesson Notes By Weeks and Term - Senior Secondary 2

Term: 1^st Term

Week: 9

Class: Senior Secondary School 2

Age: 16 years

Duration: 40 minutes of 2 periods each

Date:       

Subject:      Economics

Topic:-       Cost Concepts I

SPECIFIC OBJECTIVES: At the end of the lesson, pupils should be able to

1. Explain the meaning of cost
2. State and explain the types of costs
3. Distinguish between short-run and long-run costs
4. Discuss the economist’s cost and the accountant’s cost

INSTRUCTIONAL TECHNIQUES: Identification, explanation, questions and answers, demonstration, videos from source

INSTRUCTIONAL MATERIALS: Videos, loud speaker, textbook, pictures

INSTRUCTIONAL PROCEDURES

PERIOD 1-2

NOTE

BASIC COST CONCEPT

Cost can be defined as the prices that a producer pays for the factors of production used in the process of producing goods and services.

TYPES OF COSTS

1) Fixed Cost (FC): This is a cost which remains the same no matter the level of that output that is produced. Examples are; cost of machinery, motor vehicles, cost on land etc.

FC = Total Cost – Variable or TFC = AFC x Q

2) Variable Cost (VC): This refers to the cost which changes or varies as the output changes. Such costs are also referred to as direct or prime costs e.g expenditure on raw materials, labour wages or salaries, cost of fuel etc.

VC = TC – FC

3) Total Cost (TC)Variable Cost Output : This is the minimum cost that must be incurred by the producer to produce a certain quantity of a commodity. It is total fixed cost plus total variable cost.

Total cost = Fixed cost + variable cost or Average cost x Quantity.

4) Average Fixed Cost (AFC): This is the Fixed Cost per unit of output

5) Average Variable Cost: This is variable cost per unit of output

6) Average Total Cost (ATC): This is the total cost per unit of output.

AC =(Total cost (TC))/(Total output (tq) ) or ATC=AFC+AVC

7) Marginal Cost (MC): This is a change in total cost as a result of an additional unit of output produced.

SHORT-RUN AND LONG-RUN COSTS PERIOD

Short-run: This is a period of time when one or more inputs (factor of production) like machinery, buildings, land, equipment are fixed in quantity.

 Long-run: This is a period of time when all inputs can be varied freely. No room for any input to be fixed and entrepreneur can vary the inputs or factors such as machinery, buildings, land, equipments etc.

ECONOMISTS COST AND ACCOUNTANTS COST

Economist’s view in terms of opportunity cost is an expression of cost in term of forgone alternative.

While Accountants view cost in terms of actual amount of money spent in order to have a commodity.

For instance, if Mr. Clark has N3,000 and he desires to buy a television that cost N2,000 and an handset cost N2,500. If he eventually buys an handset, therefore, economists cost of an handset is a television that he did not buy while the accountant cost is N2,500 in which is the money cost of an handset.

EXPLICIT AND IMPLICIT COST

Explicit cost refers to the expenditure on the materials used in the process of production. It includes expenditure on raw materials, transportation, salaries, advertisement etc.

Implicit cost refers to the cost of resources owned by the entrepreneur which are used in the course of production i.e self-employed and self-owned resources

EVALUATION:    1. Define cost

2. List and explain the types of cost
3. Distinguish between short-run and long-run cost
4. Citing an example, differentiate between and economist’s cost and an accountant’s cost
5. COST SCHEDULE OF A FIRM

CLASSWORK: As in evaluation

CONCLUSION: The teacher commends the students positively