Kinh tế học - Chapter 13: The costs of production

The Costs of ProductionChapter 13Copyright © 2001 by Harcourt, Inc.All rights reserved.   Requests for permission to make copies of any part of thework should be mailed to:Permissions Department, Harcourt College Publishers,6277 Sea Harbor Drive, Orlando, Florida 32887-6777.The Firm’s ObjectiveMaximum ProfitsThe economic goal of the firm is to maximize profits.A Firm’s ProfitProfit is the firm’s total revenue minus its total cost. Profit = Total revenue - Total costTotal Cost includes all of the opportunity costs of productionEconomic Profit versus Accounting ProfitRevenueTotalopportunitycostsHow an EconomistViews a FirmExplicitcostsEconomicprofitImplicitcostsExplicitcostsAccountingprofitHow an AccountantViews a FirmRevenueWhat happens to profit though as you keep on adding workers?Additional inputAdditional output=MarginalproductDiminishing Marginal ProductDiminishing marginal product is the property whereby the marginal product of an input declines as the quantity of the input increases. Example: As more and more workers are hired at a firm, each additional worker contributes less and less to production because the firm has a limited amount of equipment. Your Journal QuestionYou have just been given 10 acres of land.The land is of varying quality.The amount of land remains fixed.What will happen to your yield as you keep on adding workers?Can you write down an example of diminishing returns from your experience?A Production Function...Quantity ofOutput(cookiesper hour)150140130120110100908070605040302010Number of Workers Hired012345Production functionFixed and Variable CostsFixed costs are those costs that do not vary with the quantity of output produced.Variable costs are those costs that do change as the firm alters the quantity of output produced.Short Run vs. Long Run CostsFamily of Total CostsTotal Fixed Costs (TFC)Total Variable Costs (TVC)Total Costs (TC) TC = TFC + TVCFamily of Total CostsQuantityTotal CostFixed CostVariable Cost0$ 3.00$3.00$ 0.0013.303.000.3023.803.000.8034.503.001.5045.403.002.4056.503.003.5067.803.004.8079.303.006.30811.003.008.00912.903.009.901015.003.0012.00Total-Cost Curve...$0.00$2.00$4.00$6.00$8.00$10.00$12.00$14.00$16.00024681012Quantity of Output(glasses of lemonade per hour)Total CostTotal-cost curveRelation Between Production Function and Total Cost.Dimininishing ReturnsAverage CostsAverage costs can be determined by dividing the firm’s costs by the quantity of output produced. The average cost is the cost of each typical unit of product. Family of Average CostsAverage Fixed Costs (AFC)Average Variable Costs (AVC)Average Total Costs (ATC)ATC = AFC + AVC$3.00Family of Average CostsQuantityAFCAVCATC0———1$0.30$3.3021.500.401.9031.000.501.5040.750.601.3550.600.701.3060.500.801.3070.430.901.3380.381.001.3890.331.101.43100.301.201.50Marginal CostMarginal cost (MC) measures the amount total cost rises when the firm increases production by one unit.Marginal cost helps answer the following question: How much does it cost to produce an additional unit of output?Marginal CostATCAVCMCAverage-Cost and Marginal-Cost Curves...$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50024681012Quantity of Output(glasses of lemonade per hour) CostsAFCMCATCRelationship Between Marginal Cost and Average Total Cost$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50024681012Quantity of Output(glasses of lemonade per hour) CostsThree Important Properties of Cost CurvesMarginal cost eventually rises with the quantity of output.Law of Diminishing Marginal ReturnsThe average-total-cost curve is U-shaped.The marginal-cost curve crosses the average-total-cost curve at the minimum of average total cost.Work on homework assignment!Costs in the Long RunFor many firms, the division of total costs between fixed and variable costs depends on the time horizon being considered.In the short run some costs are fixed.In the long run fixed costs become variable costs.Average Total Cost in the Short and Long Runs...Quantity ofCars per Day0AverageTotalCostATC in shortrun withsmall factoryATC in shortrun withmedium factoryATC in shortrun withlarge factoryATC in long runEconomies and Diseconomies of ScaleDiseconomiesof scaleQuantity ofCars per Day0AverageTotalCostATC in long runEconomiesof scaleConstant Returnsto scale