Food-Processing-Plant-Design-layout

Food Processing Plant Design & layout
Fig 11.2 A total revenue function
One may be assured of a maximum by noting that is negative since b is a positive
constant. It may be noted that the derivative of total revenue with respect to volume is
given the name "marginal revenue". It expresses the rate at which revenue increases with
increase in the volume of sales. Most enterprises, however, would not find that maximum
total revenue resulted in maximum profit, thus one must investigate the problem of total
cost of production in order to compute the profit in the more usual way.
11.3 Total cost function
Imagine that the analyst is able to examine the productive operations of the enterprise. At
this point the analyst may be especially interested in how total cost changes with the
volume of production. In estimating total cost it is helpful to divide the components of this
sum into two classes called fixed costs and variable costs.
Fixed costs include all costs independent of the volume of production. These are the costs,
which must be met irrespective of the level of production.
Variable costs include all costs which vary more or less directly with the volume of
production: These costs include such things as direct labour costs and raw material costs
that tend to rise as the number of units produced goes up. It may be difficult to discover
just exactly how variable costs do 'vary with the level of production. Further, costs which
are fixed in the short run may not be fixed in the long run. For example, if production is
stopped, the enterprise may meet its fixed expenses for a short period in anticipation of
renewed activity, however, this can not go on for long without resulting in liquidation or
some other drastic modification of the cost structure. In spite of these difficulties, these cost
classifications are sufficiently suggestive to give some important insights. To clarify these,
let
TC (D) = total cost at a production level of D units
FC = fixed costs, independent of D
73 www.AgriMoon.com