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May 27, 2021 · Long-run average total cost is a calculation that shows the average cost per unit of output for production over a lengthy period. A goal of both company management and investors is to...
- Will Kenton
In this article, we will estimate the cost of debt using two approaches: Yield-to-Maturity approach, and Debt-Rating approach. Yield-to-Maturity Approach The yield to maturity is the annual return from an investment purchased today and held till maturity, i.e., it is the rate at which the current market price of the bond is equal to the present ...
Aug 21, 2020 · Long-run average total cost (LRATC) represents the average cost per unit of production over the long run. In this calculation, all inputs are considered to be variable, because, over the long term, no costs are considered fixed.
Jun 20, 2024 · There are a couple of different ways to calculate a company’s cost of debt, depending on the information available. After-Tax Cost of Debt One way to calculate the cost of debt is by...
- Choice of Production Technology. A firm can perform many tasks with a range of combinations of labor and physical capital. For example, a firm can have human beings answering phones and taking messages, or it can invest in an automated voicemail system.
- Economies of Scale. Once a firm has determined the least costly production technology, it can consider the optimal scale of production, or quantity of output to produce.
- Shapes of Long-Run Average Cost Curves. While in the short run firms are limited to operating on a single average cost curve (corresponding to the level of fixed costs they have chosen), in the long run when all costs are variable, they can choose to operate on any average cost curve.
- The Size and Number of Firms in an Industry. The shape of the long-run average cost curve has implications for how many firms will compete in an industry, and whether the firms in an industry have many different sizes, or tend to be the same size.
Jun 3, 2024 · How to calculate the cost of debt using the cost of debt formula. The cost of debt formula is: $$r_d = \frac{I}{P}$$ where $r_d$ is the cost of debt, $I$ is the annual interest payment, and $P$ is the principal amount of the debt.
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Learning Objectives. By the end of this section, you will be able to: Calculate total cost. Identify economies of scale, diseconomies of scale, and constant returns to scale. Interpret graphs of long-run average cost curves and short-run average cost curves. Analyze cost and production in the long run and short run.
