Imputed production costs are internal costs borne personally by the entrepreneur. They are directly related to his activities. In fact, we are talking about lost revenue, which would be possible to get with a more reasonable organization of the production process.
Description
Imputed costs reflect the income that the company spends. They are spent on own production. The costs of missed opportunities are formed in the course of choosing the path of development. This is one of the fundamental concepts of modern economic theory.
Features
Imputed costs reflect the values that can be obtained with an alternative action. In this case, the latter must be abandoned. This phenomenon occurs due to limited resources to satisfy all desires. In an ideal scheme, imputed costs can be zero. This situation is possible with infinite resources. In practice, this is unacceptable. Thus, it turns out that an increase in imputed costs is observed with a decrease in resources. This indicator reflects the value of the best option. It is necessary to refuse it when making an economic choice.
Resource allocation
Imputed costs are characterized by the value of rejected opportunities. We are talking about the quantity of one good, which we have to give up in order to increase the production of another. People in reality always face a choice. And its price is reflected in opportunity costs. This indicator can be expressed in goods, money or hours. Consider how imputed costs arise by example. Suppose a company director must hire a certain number of management specialists. Each of these people during the day is able to perform only one type of work. The first specialist will bring the company 10000 CU, the second - 8000, the third - 6000. The director hires two employees. In this case, the
opportunity cost is CU6,000.
Count
A rational person needs to consider future costs. He should also calculate the costs of various unused opportunities. As a result, it will be possible to make the best
economic choice. Humanity is learning to distribute efforts and resources. The goal is the fullest possible satisfaction of a wide range of personal needs. Finding funds to accelerate wealth growth is incredibly difficult. Economic history has allowed humanity to understand that nothing is given for nothing. Any choice has a price. It is expressed in the refusal to implement the most desirable of the alternatives. The truth described is essentially universal. However, in the economic sphere it can be traced especially clearly. Let's go back to an example. If there is a consistent involvement in the production process of an ever-increasing number of less suitable resources, costs are constantly increasing. Note that the described principle is not universal. If the resources are completely interchangeable and are used with equal efficiency for the manufacture of goods, the schedule reflecting this situation takes the form of a straight line. This option is hypothetical and in its pure form is not found in practice. So, we have established that the resources that are used in the production of two different goods do not have complete interchangeability. The increase in imputed costs affects the degree of convexity of the resulting schedule. Society is continuously striving to overcome the contradiction between the need to satisfy increasing needs and disabilities. The latter are directly related to the development of productive forces. The resolution form of the described contradiction is economic growth. One of its components is an increase in labor productivity indicators. The social division of work is a qualitative differentiation of activities. It assigns manufacturers to certain types of work. The form of division of labor is specialization. Economists have discovered that it is specialization that leads to growth efficiency and productivity. So we figured out how the imputed costs are formed.