Bài giảng MicroEconomics - Chapter 7 Businesses and the Costs of Production

Businesses and the Costs of Production07McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.Economic CostsThe payment that must be made to obtain and retain the services of a resourceExplicit CostsMonetary paymentsImplicit CostsValue of next best useSelf-owned resourcesIncludes normal profitLO17-2Accounting Profit and Normal ProfitAccounting profit = Revenue – Explicit CostsEconomic profit = Accounting Profit – Implicit CostsEconomic profit (to summarize)=Total Revenue – Economic Costs=Total Revenue – Explicit Costs – Implicit CostsLO17-3Economic ProfitLO1ExplicitcostsAccounting costs (explicit costs only)Implicit costs (including a normal profit)EconomicprofitAccounting profitEconomic(Opportunity)CostsTotal Revenue7-4Short Run and Long RunShort RunSome variable inputsFixed plantLong RunAll inputs are variableVariable plantFirms enter and exitLO17-5Short-Run Production RelationshipsTotal Product (TP)Marginal Product (MP)Average Product (AP) LO2Marginal ProductChange in Total ProductChange in Labor Input=Average ProductTotal ProductUnits of Labor=7-6The Law of Diminishing ReturnsLO2TPMPAPIncreasingMarginalReturnsDiminishingMarginalReturnsNegativeMarginalReturns1234567890102030Total Product, TP1234567892010Marginal Product, MP7-7Short-Run Production CostsFixed Costs (TFC)Costs do not vary with outputVariable Costs (TVC)Costs vary with outputTotal Costs (TC)Sum of TFC and TVCTC = TFC + TVCLO37-8Short-Run Production CostsLO3Costs123456789100Q1002003004005006007008009001000$1100TFCTCTVCTotalCostVariableCostFixedCost7-9Per-Unit, or Average, CostsAverage Fixed Costs AFC = TFC/QAverage Variable Costs AVC = TVC/QAverage Total Costs ATC = TC/QMarginal Costs MC = ΔTC/ΔQLO37-10Per-Unit, or Average, CostsLO3Costs123456789100Q50100150$200AFCATCAVCAVCAFC7-11Marginal CostLO3Costs123456789100Q50100150$200AFCMCATCAVCAVCAFC7-12MC and Marginal ProductLO3MPAPMCAVCQuantity of OutputQuantity of Labor Production CurvesCost Curves7-13Long-Run Production CostsThe firm can change all input amounts, including plant size. All costs are variable in the long run.Long run ATCDifferent short run ATCsLO47-14The Long-Run Cost Curve LO4Long-RunATCAverage Total CostsATC-1ATC-2ATC-3ATC-4ATC-5Output7-15Economies and Diseconomies of ScaleEconomies of scaleLabor specializationManagerial specializationEfficient capitalOther factorsConstant returns to scaleLO47-16Economies and Diseconomies of ScaleDiseconomies of scaleControl and coordination problemsCommunication problemsWorker alienationShirkingLO47-17MES and Industry StructureMinimum Efficient Scale (MES):Lowest level of output where long- run average costs are minimizedCan determine the structure of the industryLO47-18MES and Industry StructureLO4OutputAverage Total CostsLong-RunATCEconomiesOf ScaleConstant ReturnsTo ScaleDiseconomiesOf Scaleq1q27-19Don’t Cry Over Sunk CostsSunk costs Costs have already been incurred and thus are irrecoverableRule: Do not engage in any activity where MB<MCRule: Ignore sunk costsThey are irrecoverable7-20