Answer» - In economic analysis it is quite important to understand concept of cost and revenue to understand behaviour of firm.
- As the production quantity changes, its cost of production changes. By cost we come to know the debit side and by revenue we come to know the credit side of the firm.
Importance of determining cost and revenue: - Helps the firms to decide price of its commodity
- Provides guidelines to maximize the profit of the firm
- Marginal cost helps to explain maximum profit .
- Concept of marginal cost helps to understand the behaviour of a firm
- Concepts of cost and revenue play an important role in taking decisions like, what amount of factors of production are invested by firms, how much employment is given, what amount of production and investment is done, etc.
- Concept of opportunity cost is important to know the alternative uses of factors of production in managerial economics.
- Concepts of monetary cost guide the administration of a firm.
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