TRANSPORT ECONOMICS – Costs and Revenues

In economics it is important to understand the costs and revenues of firms. This will give an important insight into the behaviour of firms. Basic / traditional economic considers that the sole purpose of firms is to maximise profits. This goal then leads firms to minimise costs and maximise profits.

Transport firms are no different. In the UK we have many types of firms

* Rail * Network Rail is responsible for rail infrastructure * Train operators responsible for ultimate service to customers (owners of franchises) * ROSCO – owners of rolling stock who lease these to the operators * Infrastructure and maintenance and renewal companies * Channel Tunnel * Air * Airlines * Owners of airports * Road * Bus and coach operators * Haulage companies * Taxi firms * Car manufacturers * Water * Port authorities * Liner companies * Ferry operators * Freight operators

Cost and revenues of firms

Total Costs

Total costs are split between fixed and variable. Fixed costs are costs that do not vary with output.

Sunk costs are those that cannot be recovered if a firm ceases trading.

TC
Costs

F C

Fixed Costs

Output

Fixed costs | Cost that must be paid irrespective of how much is produced. Does not vary with output; items like rent, rates, lighting, and management costs.In transport terms it would be items like cost of rail track, cost of roads, cost of rolling stock, costs of car, and costs of aeroplane. | Variable Costs | Costs that do vary with the level of output, items like some labour, ingredients or input or material costs.In transport terms it would be items like fuel and time (opportunity costs) |
Total Costs = Fixed Costs + Variable Costs

Average Costs

Cost per