Investment as a source of financing of productive assets

Investment - is the cost of production and accumulation of the means of production and an increase in inventories. In order to make intelligent decisions about buying equipment or building a new stage of the plant, the firm must compare past and current costs and planned costs of a possible return on investment. Different companies, factories, firms in the same investment in the production of income have different values ​​and different levels of profitability - the rate of return on invested capital that is the same fixed investment can yield different results. In this context, great importance is the economic justification of the project that is, comparing the cost of investment and the potential return on investment.

Investment is an important economic instrument. Without investment there is not a business process or movement of capital. Investments alone are not an end in themselves, they are means to obtain return on investment. Investments should certainly pay off with profits, and, most profit - that is the law of economic activity, that is, investment should be cost effective. Investing should be well designed, well-designed. And to become a reality, it is necessary to calculate the timing and degree of return on investment. In calculating the timing and extent of return on investment the main obstacle is the growth factor prices, including for fixed capital. For the calculation of the specific investment is important to make a specific assessment of the investment climate, taking into account with many conditions, such as inflation, taxation, the presence of competitors, monopolists, the quality of the labor market, the political situation.

To finance investment firms or use their profits, or turn to the market for money-capital loans. Most businesses to finance investment borrow money in the bank. The use of borrowed money capital they pay interest on loans.

Loan interest is a charge for the use of money capital, in other words, it is the price of money capital.

Rate (rate) is calculated as the percent ratio of debt to the value of money capital of borrowing, expressed as a percentage.

Percent as economic category-creditor money and the recipient of these funds. Such relationships involve not only the transfer of one person to another of money, but the conditions for their receipt. In theory, the important issue is that of the source percent. What is the origin of this form of income? On this question the economic theory gives a different answer. There are several theoretical approaches to explain the sources of interest.

The main approaches are the following:

- Marxist approach, which is based on the theory of surplus value;

- Treatment of interest in the theory of net productivity of capital;

- A psychological approach to the concept of interest as a component part of the theory of marginal utility.

Theme 8. Costs and revenues of the enterprise (company)

Nature and types of costs

Costs of production of the company (cost)- all of the cost of the company for the production and sale of products. This includes the cost of materials and supplies, depreciation, wages and other types of costs.

Modern economic theory for a different approach to the treatment costs. It comes from the limitations of resources and their possible alternative uses. Limited resources mean that it is always necessary to choose, and the choice means giving up one in favor of another.

Production costs can be divided into external (explicit) and internal (implicit).

External (explicit) or accounting related to the fact that the firm pays employees, fuel, spare parts, ie all that it does not produce itself to create the product. Depending on the specialization of the value of external costs for the production of the same product range. Thus, the assembly plant the proportion of external costs more.

Internal costs (implicit) - owner of your own company or store does not pay himself salary, does not receive the rent for the building, which houses the shop. If he puts money in the trade, you will not get those interest that he had put them in the bank. Explicit costs are sometimes called accounting costs, and the amount of implicit and explicit call economic costs.

Costs are divided into independent of size and depending on the volume of products produced by the company, called the fixed and variable costs of production.

Fixed costs of production FC firm is independent of the volume of production. It is the costs of the Company, payment of interest on loans, taxes, depreciation and payroll costs management personnel. They will not change their output.

VC variable costs change with production volume. They represent the firm's costs for raw materials, wages, energy and transport. Division of costs into fixed and variable is applied to the short-term period of operation of the firm. In the short run, fixed costs remain the same, and the firm can change the amount of products just by changing the value of variable costs. In the long run all costs become variable, ie it is quite a long time interval for firm could change its production capacity.

Total cost TC is the sum of fixed and variable costs. Their size varies as a rule, with changes in the variable costs of production. Total costs are different from the variables only fixed costs.

C TC C MC AC

AVC

VC

FC

AFC

Q Q

Figure 10. Fixed, variable and Fig.11. Average and marginal

total costs of the company costs of firm

Us to know the value of costs per unit of output. Therefore, average the cost of production. Distinguish three types of average costs (Figure 11):

1)The average fixed cost AFC. They are fixed costs, divided by the volume of production. Since fixed costs do not change, then the AFC decreases as the volume of production:

AFC = FC

Q

2)The average variable cost AVC. They are variable costs divided by the volume of production:

AVC = VC

Q

3) The average total cost ATC. They represent the total cost divided by the volume of production ATS has costs per unit of output:

АТС =ТС

Q

They represent a link between the cost of production and its price. Comparing them with the price of the item, you can determine profitability or excessive production.

The company always strives to obtain maximum profit. To do this, it increases the volume of production, there is the additional cost of production. As far as they are effective, to judge the category of marginal costs of production.

The marginal cost МС (sometimes called incremental, marginal) costs are gains from the production of one additional unit of output:

МС= ТС

Q

Marginal costs are determined by the growth of only the variable costs of production as a result of an additional unit of output. They show. How much will my company increase its total output by one unit.

Opportunity cost (or opportunity costs) - costs of which the company refuses, when it uses its resources and is not lost due to the use of these resources in the best way. These costs represent the best use of resources of the firm. These costs are called opportunity costs.

The company is the so-called transaction costs. They are related to the fact that the company constantly makes contracts, carries out transactions with partners. So it is constantly necessary to negotiate, establish connections, negotiating conditions, gather the information you need to notify their future partners, i.e. exercise of market transactions. All this requires costs or transaction costs.

Revenue and its types

As the income in a market economy is the amount of money received by a private individual, a corporation or a national economy over a certain period of time (usually a year) and provide for the acquisition of goods and services.

Types of income:

- Total revenue - is the result of multiplying the unit price and its corresponding number:

TR= P x Q

- Average revenue - income from a unit of production (i.e., the price per unit of output) is determined by dividing gross income by the number of products:

АR =ТR

Q

- Marginal revenue - additional income, which is the result of selling one additional unit of output:

МR= ТR

Q

Sources of cash revenue:

1. Salary;

2. Property revenue (dividends, interest, rents, profits, etc.);

3. Transfer payments to the state or social benefits (pensions, unemployment benefits, etc.).

In a market economy, there is inequality in income distribution, which is measured by the Lorenz curve, and expresses the degree of inequality, the Ginny coefficient.

The fact that the owners of the factors of production are the revenue, the buyers of these factors is the costs. Factor prices under perfect competition are determined by supply and demand.

The size of the demand for each factor depends not only on the level of prices for this factor, but also on the prices of other resources. When the price of a certain factor increases, demand will fall and the demand for the other factor will increase.

For example, a higher price for labor will lead to the replacement of its machines. The possibility of mutual substitution of factors of production allows combining them in a ratio that provides the lowest production costs and highest profits.

The elasticity of demand for each particular factor of production can vary depending on:

- The level of income of the company and the demand for its manufactured products;

- Mutual substitution possibilities used in the production of resources;

- The availability of markets interchangeable and complementary inputs at affordable prices;

- The desire to innovate, etc.