13 the cost of production.ppt
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1、Part 5 Firm Behavior and the Organization of Industry,Chapter 13 The Cost of Production develops the cost curves on which firm behavior is based Chapter 14 Firms in Competitive Markets Chapter 15 Monopoly Chapter 16 Oligopoly Chapter 17 Monopolistic Competition Chapters 14-17 utilize these cost curv
2、es to develop the behavior of firms in a variety of different market structures.,Chapter 13,The Costs of Production,LEARNING OBJECTIVES,The purpose of Chapter 13 is to address the costs of production and develop the firms cost curves. These cost curves underlie the firms supply curve. By the end of
3、this chapter, students should understand: what items are included in a firms costs of production.,LEARNING OBJECTIVES,the link between a firms production process and its total costs. the meaning of average total cost and marginal cost and how they are related. the shape of a typical firms cost curve
4、s. the relationship between short-run and long-run costs.,WHAT ARE COSTS?,Hungry Helen”s Cookie Factory By examining some of the issues that Helen faces in her business, we can learn some lessons about costs that apply to all firms in the economy.,Total Revenue, Total Cost, and Profit,Goal of a firm
5、: to maximize profit. Total revenue: the amount a firm receives for the sale of its output. Total cost: the market value of the inputs a firm uses in production. Profit: total revenue minus total cost.,Costs as Opportunity Costs,The cost of something is what you give up to get it. The costs of produ
6、cing an item must include all of the opportunity costs of inputs used in production. Total opportunity costs include both implicit and explicit costs. Explicit costs: input costs that require an outlay of money by the firm.,Costs as Opportunity Costs,Implicit costs: input costs that do not require a
7、n outlay of money by the firm. This is the major way in which accountants and economists differ in analyzing the performance of a company. Accountants focus on only explicit costs, while economists examine both explicit and implicit costs.,The Cost of Capital as an Opportunity Cost,The opportunity c
8、ost of financial capital is an important cost to include in any analysis of firm performance. Example: Helen uses $300,000 of her savings to start her firm. It was in a savings account paying 5% interest. Since Helen could have earned $15,000 per year on this savings, we must include this opportunit
9、y cost.,The Cost of Capital as an Opportunity Cost,If Helen had instead borrowed $200,000 from a bank and used $100,000 from her savings, the opportunity cost would not change if the interest rate stayed the same. But the accountant would now count the $10,000 in interest paid for the bank loan.,Eco
10、nomic Profit Versus Accounting Profit,Economic profit: total revenue minus total cost, including both explicit and implicit costs. Accounting profit: total revenue minus total explicit cost. If implicit costs are greater than zero, accounting profit will always exceed economic profit.,Figure 1 Econo
11、mic Profit versus Accounting Profit,PRODUCTION AND COSTS,Assume that the size of Helens factory is fixed and Helen can vary the quantity of cookies produced only by changing the number of workers. This assumption is realistic in the short run but not in the long run.,The Production Function,Producti
12、on function: the relationship between quantity of inputs used to make a good and the quantity of output of that good. Example: Helens cookie factory. The size of the factory is assumed fixed; Helen can vary her output (cookies) only by varying the labor used:,Table 1 A Production Function and Total
13、Cost: Hungry Helens Cookie Factory,The Production Function,Marginal product: the increase in output that arises from an additional unit of input. As the amount of labor used increases, the marginal product of labor falls.,The Production Function,Diminishing marginal product: the property whereby the
14、 marginal product of an input declines as the quantity of the input increases. We can draw a graph of the firms production function by plotting the level of labor (x-axis) against the level of output (y-axis).,Figure 2 Hungry Helens Production Function and Total- Cost Curve (a),Quantity of,Output,(c
15、ookies,per hour),150,140,130,120,110,100,90,80,70,60,50,40,30,20,10,Number of Workers Hired,0,1,2,3,4,5,Production function,The Production Function,The slope of the production function measures marginal product. Diminishing marginal product can be seen from the fact that the slope falls as the amoun
16、t of labor used increases.,From the Production Function to the Total-Cost Curve,We can draw a graph of the firms total cost curve by plotting the level of output (x-axis) against the total cost of producing that output (y-axis). The total cost curve gets steeper and steeper as output rises. This inc
17、rease in the slope of the total cost curve is also due to diminishing marginal product.,Figure 2 Hungry Helens Production Function and Total- Cost Curve (b),Total,Cost,$80,70,60,50,40,30,20,10,Quantity of Output,(cookies per hour),0,20,40,140,120,100,80,60,Total-cost,curve,THE VARIOUS MEASURES OF CO
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