Costs of production in the long run, their nature and impact on profits

For a long period of work, for various reasons, the conditions of the enterprise's operation, the structure of its resources, can vary. Scenarios of these changes can also be very diverse, for example, a firm can change production volumes, acquire new equipment, lease free production facilities. All this in one way or another affects the costs of production in the long run. The scale of the transformations in the enterprise determines, accordingly, the variety of types of costs.

There is also a definite regularity in the dependence of the magnitude of costs on the scale of the transformations carried out. So, for example, a constant increase in capacity objectively entails an increase in the average total costs. When considering a long-term period, average costs tend to change depending on the scale change, while their minimum parameter indicates the optimal value of production volumes. There is also a minimum parameter that determines the costs of production of the firm. It is the smallest volume of production that a company can reduce its average production costs in the long run. The effectiveness of this option is determined by the dependence: the more the company produces products, the lower the average costs.

The establishment of the optimal value of production costs, under which the firm's market stability is guaranteed, is one of the main tasks of its economic activity. For this provision to be sustainable, it is necessary to understand the nature of costs, to present their classification structure and to know how the costs of production and the profit of the firm are correlated.

In the simplest terms, the costs of production are those resources that are expended by the enterprise or firm in the process of creating marketable products. In this context, all production costs in the long run should be considered as payment for used production factors. They include depreciation, payment of materials, salaries for employees and much more. When the products are sold, the enterprise receives revenue, from which part comes to compensate the costs associated with production, the other part of the proceeds is sent to the purpose for which the production is organized.

Modern economists-researchers consider the cost of production in the long run from the point of view of the entrepreneur, and not in the way that, for example, the Marxist interpretation assumed. According to the modern approach, these costs differ from those associated with advancing capital, and represent only those costs that arise in the production of this particular product.

The costs of circulation are the costs of selling the goods. They are classified into net (which are directly related to the purchase and sale process) and additional (related to the infrastructure within which the sale of the goods is provided). It should be borne in mind that the additional ones, as such, do not increase the value of the value, but can be repaid only after the sale of the commodity output from the profit received by the enterprise. Additional, such costs are called because they serve as an objective appendage of net profit. The current stage in the development of economic science is based on the fact that an enterprise or firm expects to receive income from all, without exception, costs that they may have in the course of their production activities in order to ensure a positive development of business and stability in markets in the face of growing competition.