曼昆微观经济学.pptx

13The Costs of Production Learning ObjectivesExamine what items are included in a firms costs of productionAnalyze the link between a firms production process and its total costsLearn the meaning of average total cost and marginal cost and how they are relatedConsider the shape of a typical firms cost curvesExamine the relationship between short-run and long-run costsThe Market Forces of Supply and DemandSupply and demand are the two words that economists use most often.Supply and demand are the forces that make market economies work.Modern microeconomics is about supply,demand,and market equilibrium.WHAT ARE COSTS?According to the Law of Supply:Firms are willing to produce and sell a greater quantity of a good when the price of the good is high.This results in a supply curve that slopes upward.WHAT ARE COSTS?The Firms ObjectiveThe economic goal of the firm is to maximize profits.Total Revenue,Total Cost,and ProfitTotal RevenueThe amount a firm receives for the sale of its output.Total CostThe market value of the inputs a firm uses in production.Total Revenue,Total Cost,and ProfitProfit is the firms total revenue minus its total cost.Profit=Total revenue Total costCosts as Opportunity CostsA firms cost of production includes all the opportunity costs of making its output of goods and services.Explicit and Implicit CostsA firms cost of production include explicit costs and implicit costs.ExplicitExplicit costs are input costs that require a direct outlay of money by the firm.ImplicitImplicit costs are input costs that do not require an outlay of money by the firm.Economic Profit versus Accounting ProfitEconomists measure a firms economic profit as total revenue minus total cost,including both explicit and implicit costs.Accountants measure the accounting profit as the firms total revenue minus only the firms explicit costs.Economic Profit versus Accounting ProfitWhen total revenue exceeds both explicit and implicit costs,the firm earns economic profit.Economic profit is smaller than accounting profit.Figure 1 Economic versus AccountantsCopyright 2004 South-WesternRevenueTotalopportunitycostsHow an EconomistViews a FirmHow an AccountantViews a FirmRevenueEconomicprofitImplicitcostsExplicitcostsExplicitcostsAccountingprofitPRODUCTION AND COSTSThe Production FunctionThe production functionproduction function shows the relationship between quantity of inputs used to make a good and the quantity of output of that good.The Production Function Marginal ProductThe marginal productmarginal product of any input in the production process is the increase in output that arises from an additional unit of that input.The Production Function Diminishing Marginal ProductDiminishing 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.Figure 2 Hungry Helens Production FunctionCopyright 2004 South-WesternQuantity ofOutput(cookiesper hour)150140130120110100908070605040302010Number of Workers Hired012345Production functionThe Production Function Diminishing Marginal Product The slope of the production function measures the marginal product of an input,such as a worker.When the marginal product declines,the production function becomes flatter.From the Production Function to the Total-Cost CurveThe relationship between the quantity a firm can produce and its costs determines pricing decisions.The total-cost curve shows this relationship graphically.Table 3 A Production Function and Total Cost:Hungry Helens Cookie FactoryCopyright2004 South-WesternFigure 3 Hungry Helens Total-Cost CurveCopyright 2004 South-WesternTotalCost$8070605040302010Quantityof Output(cookies per hour)01020 30150130110907050401401201008060Total-costcurveTHE VARIOUS MEASURES OF COSTCosts of production may be divided into fixed costs and variable costs.Fixed and Variable CostsFixed costs are those costs that do not vary with the quantity of output produced.Variable costs are those costs that do vary with the quantity of output produced.Fixed and Variable CostsTotal CostsTotal Fixed Costs(TFC)Total Variable Costs(TVC)Total Costs(TC)TC=TFC+TVCTable 4 The Various Measures of Cost:Thirsty Thelmas Lemonade StandCopyright2004 South-WesternFixed and Variable CostsAverage CostsAverage costs can be determined by dividing the firms costs by the quantity of output it produces.The average cost is the cost of each typical unit of product.Fixed and Variable CostsAverage CostsAverage Fixed Costs(AFC)Average Variable Costs(AVC)Average Total Costs(ATC)ATC=AFC+AVCAverage CostsTable 2 The Various Measures of Cost:Thirsty Thelmas Lemonade StandCopyright2004 South-WesternFixed and Variable CostsMarginal CostMarginal costMarginal cost(MC)measures the increase in total cost that arises from an extra unit of production.Marginal cost helps answer the following question:How much does it cost to produce an additional unit of output?Marginal CostMarginal Cost Thirsty Thelmas Lemonade StandFigure 4 Thirsty Thelmas Total-Cost CurvesCopyright 2004 South-WesternTotal Cost$15.0014.0013.0012.0011.0010.009.008.007.006.005.004.003.002.001.00Quantityof Output(glasses of lemonade per hour)014327659810Total-cost curveFigure 5 Thirsty Thelmas Average-Cost and Marginal-Cost CurvesCopyright 2004 South-WesternCosts$3.503.253.002.752.502.252.001.751.501.251.000.750.500.25Quantityof Output(glasses of lemonade per hour)014327659810MCATCAVCAFCCost Curves and Their ShapesMarginal cost rises with the amount of output produced.This reflects the property of diminishing marginal diminishing marginal productproduct.Cost Curves and Their ShapesThe average total-cost curve is U-shaped.At very low levels of output average total cost is high because fixed cost is spread over only a few units.Average total cost declines as output increases.Average total cost starts rising because average variable cost rises substantially.Cost Curves and Their ShapesThe bottom of the U-shaped ATC curve occurs at the quantity that minimizes average total cost.This quantity is sometimes called the efficient scale of the firm.Figure 5 Thirsty Thelmas Average-Cost and Marginal-Cost CurvesCopyright 2004 South-WesternCosts$3.503.253.002.752.502.252.001.751.501.251.000.750.500.25Quantityof Output(glasses of lemonade per hour)014327659810ATCCost Curves and Their Shapes Relationship between Marginal Cost and Average Total CostWhenever marginal cost is less than average total cost,average total cost is falling.Whenever marginal cost is greater than average total cost,average total cost is rising.The marginal-cost curve crosses the average-total-cost curve at the efficient scaleefficient scale.Efficient scale is the quantity that minimizes average total cost.Figure 5 Thirsty Thelmas Average-Cost and Marginal-Cost CurvesCopyright 2004 South-WesternCosts$3.503.253.002.752.502.252.001.751.501.251.000.750.500.25Quantityof Output(glasses of lemonade per hour)014327659810ATCMCTypical Cost CurvesIt is now time to examine the relationships that exist between the different measures of cost.Big Bobs Cost CurvesFigure 6 Big Bobs Cost CurvesCopyright 2004 South-Western(a)Total-Cost Curve$18.0016.0014.0012.0010.008.006.004.00Quantity of Output(bagels per hour)TC42681412102.00TotalCost0Figure 6 Big Bobs Cost CurvesCopyright 2004 South-Western(b)Marginal-and Average-Cost CurvesQuantity of Output(bagels per hour)Costs$3.002.502.001.501.000.5004268141210MCATCAVCAFCTypical Cost Curves Three Important Properties of Cost CurvesMarginal cost eventually rises with the quantity of output.The average-total-cost curve is U-shaped.The marginal-cost curve crosses the average-total-cost curve at the minimum of average total cost.COSTS IN THE SHORT RUN AND 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.COSTS IN THE SHORT RUN AND IN THE LONG RUNBecause many costs are fixed in the short run but variable in the long run,a firms long-run cost curves differ from its short-run cost curves.Figure 7 Average Total Cost in the Short and Long RunCopyright 2004 South-WesternQuantity ofCars per Day0AverageTotalCost1,200$12,000ATC in shortrun withsmall factoryATC in shortrun withmedium factoryATC in shortrun withlarge factoryATC in long runEconomies and Diseconomies of ScaleEconomies of scale refer to the property whereby long-run average total cost falls as the quantity of output increases.Diseconomies of scale refer to the property whereby long-run average total cost rises as the quantity of output increases.Constant returns to scale refers to the property whereby long-run average total cost stays the same as the quantity of output increasesFigure 7 Average Total Cost in the Short and Long RunCopyright 2004 South-WesternQuantity ofCars per Day0AverageTotalCost1,200$12,0001,00010,000EconomiesofscaleATC in shortrun withsmall factoryATC in shortrun withmedium factoryATC in shortrun withlarge factoryATC in long runDiseconomiesofscaleConstantreturns toscaleSummaryThe goal of firms is to maximize profit,which equals total revenue minus total cost.When analyzing a firms behavior,it is important to include all the opportunity costs of production.Some opportunity costs are explicit while other opportunity costs are implicit.SummaryA firms costs reflect its production process.A typical firms production function gets flatter as the quantity of input increases,displaying the property of diminishing marginal product.A firms total costs are divided between fixed and variable costs.Fixed costs do not change when the firm alters the quantity of output produced;variable costs do change as the firm alters quantity of output produced.SummaryAverage total cost is total cost divided by the quantity of output.Marginal cost is the amount by which total cost would rise if output were increased by one unit.The marginal cost always rises with the quantity of output.Average cost first falls as output increases and then rises.SummaryThe average-total-cost curve is U-shaped.The marginal-cost curve always crosses the average-total-cost curve at the minimum of ATC.A firms costs often depend on the time horizon being considered.In particular,many costs are fixed in the short run but variable in the long run.