Lesson Note on Cost Concepts: Short-Run, Long-Run and Views of Cost for SS 2

Class: Senior Secondary School 2 (SS2 / SSS 2)
Term: First Term
Week: 8
Age: 16 years
Duration: 45 minutes
Subject: Economics
Curriculum Theme: Production and Cost
Previous Lesson: Cost Concepts: Meaning, Types of Cost and Cost Curves.
Topic: COST CONCEPTS
Subject Matter: Short-run costs, long-run costs, distinction between economist’s view of cost and accountant’s view of cost

Specific Objectives

By the end of the lesson, pupils should be able to:

Cognitive Domain:

• Define cost in economics.
• Differentiate between short-run and long-run costs.
• Compare the economist’s view of cost with the accountant’s view of cost.

Affective Domain:

• Appreciate the importance of understanding different cost concepts for business decision-making.
• Participate actively in discussions about various types of costs in business.

Psychomotor Domain:

• Draw and label basic short-run and long-run cost curves.
• Identify different cost items from a given business scenario.

Social Domain:

• Collaborate with peers to discuss how businesses incur and manage costs.
• Relate cost concepts to real-world business operations in their communities.

Reference Materials

The following resources were used in planning this lesson:

• Senior Secondary Schools Education Curriculum
• State Unified Scheme of Work
• Economics for Senior Secondary Schools, by A. O. Anyaele
• https://www.jstor.org/stable/2253248
• https://nigerianfinder.com/economics-textbooks-for-senior-secondary-school/

Instructional Materials

The teacher will teach this lesson with the aid of:

• Whiteboard or chalkboard
• Markers or chalk
• Charts showing different cost curves (e.g., Total Cost, Average Cost, Marginal Cost)
• Handouts with simple business scenarios for cost identification

Rationale for the Lesson

This lesson helps pupils understand the various types of costs that businesses incur in their operations. Understanding cost concepts is important for making informed business decisions, setting prices, and evaluating profitability in real-world economic activities.

Prerequisite/Previous Knowledge

Pupils have a basic understanding of production, factors of production, and the concept of scarcity from previous lessons.

Lesson Content/Board Summary

COST CONCEPTS

Definition of Cost

In economics, cost refers to the expenses incurred by a firm in the process of producing goods and services. It includes all payments made to factors of production such as land, labour, capital, and entrepreneurship.

Short-Run Costs

The short run is a period during which at least one factor of production is fixed, while others are variable. Firms cannot easily change the scale of their operations in the short run.

The following are types of short-run costs:

• Total Fixed Cost (TFC): These are costs that do not change with the level of output in the short run. Examples include rent, insurance premiums, and salaries of administrative staff. TFC curve is a horizontal line.
• Total Variable Cost (TVC): These are costs that change directly with the level of output. Examples include raw materials, wages for casual labour, and fuel. TVC curve starts from the origin and increases as output increases.
• Total Cost (TC): This is the sum of total fixed cost and total variable cost. TC = TFC + TVC. The TC curve is parallel to the TVC curve.
• Average Fixed Cost (AFC): This is the total fixed cost per unit of output. AFC = TFC / Quantity (Q). The AFC curve continuously falls as output increases.
• Average Variable Cost (AVC): This is the total variable cost per unit of output. AVC = TVC / Quantity (Q). The AVC curve is U-shaped.
• Average Total Cost (ATC) or Average Cost (AC): This is the total cost per unit of output. ATC = TC / Quantity (Q) or ATC = AFC + AVC. The ATC curve is U-shaped.
• Marginal Cost (MC): This is the additional cost incurred in producing one more unit of output. MC = Change in TC / Change in Quantity (Q) or MC = Change in TVC / Change in Quantity (Q). The MC curve is U-shaped and intersects the AVC and ATC curves at their minimum points.

Long-Run Costs

The long run is a period during which all factors of production are variable. Firms have enough time to change the scale of their operations, including plant size and technology.

The following are types of long-run costs:

• Long-Run Average Cost (LRAC): This is the lowest average cost of producing any given level of output when all factors of production are variable. The LRAC curve is an envelope of all the short-run average cost (SRAC) curves, also U-shaped, reflecting economies and diseconomies of scale.
• Long-Run Marginal Cost (LRMC): This is the additional cost incurred when all factors of production are varied to produce an additional unit of output in the long run. The LRMC curve intersects the LRAC curve at its minimum point.

Distinction between Economist’s View of Cost and Accountant’s View of Cost

Economists and accountants view costs differently due to their different objectives.

• Accountant’s View of Cost (Explicit Costs):
  • Accountants focus on explicit costs, which are actual monetary payments made by the firm for resources purchased from outside sources.
  • These are recorded in the firm’s financial statements.
  • Examples: wages, rent, utilities, raw materials.
  • Purpose: To report past performance and calculate taxable profit.
• Economist’s View of Cost (Explicit + Implicit Costs / Opportunity Cost):
  • Economists consider both explicit costs and implicit costs.
  • Implicit Costs: These are the opportunity costs of resources owned and used by the firm. They represent the income foregone by not using the resources in their best alternative use.
  • Examples: the salary an entrepreneur could have earned working elsewhere, the rent a firm could have earned by leasing out its owned building.
  • Purpose: To guide future decision-making and determine economic profit.

Teaching Methods/Instructional Techniques

Discussion, Lecture, Demonstration, Question and Answer, Visual Aids

Instructional Procedures

Step 1: Introduction

Time: 5 minutes
Teaching Skill: Set Induction
Teacher’s Activity: The teacher greets the pupils and asks them what they consider as “cost” in their daily lives, giving examples like school fees or transport fare.
Pupils’ Activity: Pupils respond by giving their own examples of costs they encounter.
Learning Point: Pupils are introduced to the concept of cost in a familiar context.

Step 2: Definition of Cost

Time: 5 minutes
Teaching Skill: Explanation/Definition
Teacher’s Activity: The teacher defines cost in an economic context, explaining it as expenses incurred in production, and writes the definition on the board.
Pupils’ Activity: Pupils listen attentively, ask questions for clarity, and copy the definition into their notebooks.
Learning Point: Pupils understand the economic definition of cost.

Step 3: Short-Run Costs

Time: 10 minutes
Teaching Skill: Explanation/Illustration
Teacher’s Activity: The teacher explains the concept of the short run and introduces various short-run cost concepts: Total Fixed Cost (TFC), Total Variable Cost (TVC), Total Cost (TC), Average Fixed Cost (AFC), Average Variable Cost (AVC), Average Total Cost (ATC), and Marginal Cost (MC), defining each and stating their formulas.
Pupils’ Activity: Pupils listen, take notes, and ask questions about the different cost types and their calculations.
Learning Point: Pupils learn about the different types of costs incurred in the short run.

Step 4: Long-Run Costs

Time: 5 minutes
Teaching Skill: Explanation/Comparison
Teacher’s Activity: The teacher explains the concept of the long run and introduces Long-Run Average Cost (LRAC) and Long-Run Marginal Cost (LRMC), distinguishing them from short-run costs.
Pupils’ Activity: Pupils listen and note the key differences and definitions of long-run costs.
Learning Point: Pupils understand cost concepts in the long run.

Step 5: Cost Curves

Time: 5 minutes
Teaching Skill: Demonstration/Visualisation
Teacher’s Activity: The teacher draws and explains the shapes of the various short-run and long-run cost curves (TFC, TVC, TC, AFC, AVC, ATC, MC, LRAC, LRMC) on the board, explaining their relationships.
Pupils’ Activity: Pupils observe the curves, ask questions about their shapes, and attempt to sketch them in their notebooks.
Learning Point: Pupils visualize how different costs behave as output changes.

Step 6: Economist vs. Accountant View

Time: 5 minutes
Teaching Skill: Comparative Analysis
Teacher’s Activity: The teacher explains the distinction between an economist’s view of cost (explicit and implicit costs) and an accountant’s view of cost (explicit costs only), providing examples for each.
Pupils’ Activity: Pupils listen, compare the two perspectives, and note down the key differences.
Learning Point: Pupils understand the different approaches to cost measurement.

Step 7: Evaluation/Review

Time: 5 minutes
Teaching Skill: Questioning/Assessment
Teacher’s Activity: The teacher evaluates the learning by asking the following questions:

1. Define cost in economics.
2. Distinguish between short-run and long-run costs.
3. Mention any three types of short-run costs.
4. Explain the difference between an economist’s cost and an accountant’s cost.

Pupils’ Activity: Pupils answer orally and in writing.

Learning Point: Pupils demonstrate understanding of the lesson.

Step 8: Conclusion

Time: 5 minutes
Teaching Skill: Summarization/Assignment
Teacher’s Activity: The teacher summarizes the key points of the lesson on cost concepts and assigns homework: “List five cost items a local tailor would incur in running their business, categorizing them as fixed or variable costs.”
Pupils’ Activity: Pupils listen to the summary and copy the homework assignment.
Learning Point: Pupils consolidate their understanding and apply concepts to a practical scenario.

Lesson Keywords

• Cost – Expenses incurred in production.
• Short-run – Period with at least one fixed factor.
• Long-run – Period where all factors are variable.
• Fixed Cost – Costs not changing with output.
• Variable Cost – Costs changing with output.
• Explicit Cost – Actual monetary payments.
• Implicit Cost – Opportunity cost of owned resources.

Differentiation

For pupils who grasp concepts quickly, the teacher can provide additional questions involving simple cost calculations or ask them to research real-world examples of economies of scale. For pupils needing more support, the teacher will provide simplified definitions, use more visual aids, and offer one-on-one guidance to ensure they understand the basic distinctions between cost types.

Note for teachers using this lesson plan

Ensure that pupils clearly understand the distinction between fixed and variable factors in the short run, as this is fundamental to understanding short-run costs. Use simple, relatable examples from local businesses to illustrate each cost concept. When drawing cost curves, emphasize the typical shapes and why they take those shapes (e.g., diminishing returns for U-shaped curves). Encourage pupils to actively participate by asking them to identify costs in various scenarios.