Available online
Description
Total costs can be divided into a fixed and a variable element. Both economists and accountants, whilst recognizing the difficulty of dividing costs into these two classes, argue that such a divisi...on can provide the basis for rational pricing policies for firms and industries, while allowing some prescriptive recommendations to be viewed more sceptically. In this programme, Ken Penney, an economist, and Pat Kirkman, an accountant, both from the University of Exeter discuss the problems of distinguishing between fixed and variable costs. Pat Kirkman shows that firms that recognise the distinction will be able to estimate future profits more accurately and when necessary, design short-term pricing policies to cover variable costs only. Ken Penney argues that economists have made policy recommendation without being fully aware of the differences in costs. In particular he examines the case for nationalised industries charging a price equal to marginal cost. He points out that if marginal cost is below average cost, then such a policy will lead to the industry incurring losses.
Total costs can be divided into a fixed and a variable element. Both economists and accountants, whilst recognizing the difficulty of dividing costs into these two classes, argue that such a divisi...on can provide the basis for rational pricing policies for firms and industries, while allowing some prescriptive recommendations to be viewed more sceptically. In this programme, Ken Penney, an economist, and Pat Kirkman, an accountant, both from the University of Exeter discuss the problems of distinguishing between fixed and variable costs. Pat Kirkman shows that firms that recognise the distinction will be able to estimate future profits more accurately and when necessary, design short-term pricing policies to cover variable costs only. Ken Penney argues that economists have made policy recommendation without being fully aware of the differences in costs. In particular he examines the case for nationalised industries charging a price equal to marginal cost. He points out that if marginal cost is below average cost, then such a policy will lead to the industry incurring losses.
| Module code and title: | D222, Microeconomics |
|---|---|
| Item code: | D222; 05; 1974 |
| First transmission date: | 09-06-1974 |
| Published: | 1974 |
| Rights Statement: | |
| Restrictions on use: | |
| Duration: | 00:24:22 |
| + Show more... | |
| Producer: | Nigel Houghton |
| Contributors: | Ken Penney; Pat Kirkman |
| Publisher: | BBC Open University |
| Keyword(s): | Accounting; Costs; Economics |
| Footage description: | Penney introduces the programme. It will deal with how accountants and economists consider costs. He starts off by distinguishing between the varying kinds of costs - fixed, variable, and total - seen as averages. Kirkman discusses profit statements and how they can be used for planning future activities. Using an example of a profit statement he shows how costs can be helpful as a guide to forward planning and future profits. He continues by outlining problems met when discussing costs. He examines motor vehicle costs as a good example of classification difficulties. To show the value of correctly weighing up the various types of costs, Kirkman discusses a problem concerning the retail price of shoes. Winter holidays in Majorca etc. are an example of average variable cost pricing. Penney uses some other examples to show the problems of costing. He introduces the economist's concept of marginal costs and how this will affect pricing policies. Kirkman then examines what Cost Accountants mean by marginal costs. He also looks at an accountant's average total cost curve. Penney shows how this is a very important divergence between the accountant's and economist's concept of cost. He goes on to give a practical example of setting price equal to marginal cost in the electricity supply industry and examining what this would imply for the consumer. Kirkman states that accountants would not be in favour of marginal cost pricing. He explains why. Penney sums up on the problem of costs. Credits. |
| Master spool number: | 6HT/71257 |
| Production number: | 00525_2037 |
| Videofinder number: | 88 |
| Available to public: | no |
