Difference between traditional and modern theory of cost - Brainly.in (2024)

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The main difference between traditional and modern theory of cost is that whereas traditional theory (also known as short run cost curve) of cost total fixed cost is graphically denoted by parallel line to the output axis and total variable cost is graphically S-shaped, the modern theory of cost is L-shaped.

In the cost theory, the two types of costs associated with production are; Fixed cost and variable cost.

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The traditional and modern theory of cost

Explanation:

• The traditional theory of cost consists of short and long-run costs. The short-run is fixed for some period and consists of usually entrepreneurship and equipment. The long-run is the cost over which the factors becomes variable.

• The short-run costs of traditional method include TC = TFC + TVC. They include the salaries of administrative staff, wear and tear of machinery, and expense of land and depreciation. The variable costs include the raw materials and costs of indirect labor.

• The long-run costs of the traditional method said to be in the form of a planning curve, which guides in decision making and expansion of future output. It is derived from the short-run average costs.

• The modern cost theory regards the shape of curves and appears to be in the form of U shaped. The short term curves are AFC, SMC, SAC derived form the tola fixed, and variable costs.

• Long term cost curves are L shaped and curves fall after a point and may slope down gently.

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• brainly.in/question/6921503 answered by edwin555.