1 chapter 8 costs of production costs of production principles of economics by fred m gottheil...
TRANSCRIPT
![Page 1: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/1.jpg)
1
Chapter 8Chapter 8Chapter 8Chapter 8Costs of Production Costs of Production Principles of Economics
by Fred M GottheilPowerPoint Slides prepared by Ken Long
©©1999 South-Western College Publishing
![Page 2: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/2.jpg)
2
What is a Production Function?
What is a Production Function?
A relationship between inputs and
outputs
![Page 3: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/3.jpg)
3
Q = f(L, C)Q = f(L, C)
• Q = output• L = labor input• C = capital input
![Page 4: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/4.jpg)
4
What is the Short Run?What is the Short Run?A time in which producers
can change some, but not all of its resources (inputs)
©©1999 South-Western College Publishing
![Page 5: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/5.jpg)
5
What is the Long Run?What is the Long Run?The time period in which
producers can change any of its resources
©©1999 South-Western College Publishing
![Page 6: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/6.jpg)
6
Example of a production functionTP = total product or output, MP
= marginal product
Example of a production functionTP = total product or output, MP
= marginal product
Labor TP MP0 01 10 102 24 143 36 124 46 105 52 66 54 27 54 08 52 -2
![Page 7: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/7.jpg)
7
Total and marginal product curvesTotal and marginal product curves
Total Product
Labor
Marginal Product
Labor
![Page 8: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/8.jpg)
8
Marginal Product
LaborI II
III
•Zone 1, increasing MP
•Zone 3, negative MP
•Zone 2, diminishing MP
•Can you see why the firm is likely to end up operating in zone 2?
![Page 9: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/9.jpg)
9
What is the Law of Diminishing Returns?What is the Law of
Diminishing Returns?As more units of a
resource are added to production output will increase by smaller amounts, ceteris paribus
©©1999 South-Western College Publishing
![Page 10: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/10.jpg)
10
Short Run Costs of Production
Short Run Costs of Production
Total costs = Total Fixed costs + Total Variable costs
TC = TFC + TVC
![Page 11: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/11.jpg)
11
What is a Fixed Cost?What is a Fixed Cost?Cost to a firm that does
not vary with the quantity of goods produced
©©1999 South-Western College Publishing
![Page 12: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/12.jpg)
12
What are examples of Fixed Costs?
What are examples of Fixed Costs?
• rent or mortgage• loan payments• certain salaries• a part of utilities• property taxes
©©1999 South-Western College Publishing
![Page 13: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/13.jpg)
13
What are some other names for Fixed Cost?What are some other
names for Fixed Cost?
Sunk and Historical
©©1999 South-Western College Publishing
![Page 14: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/14.jpg)
14
What is a Variable Cost?What is a Variable Cost?Cost that varies with the
quantity of goods produced
©©1999 South-Western College Publishing
![Page 15: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/15.jpg)
15
What are examples of Variable Costs?
What are examples of Variable Costs?• worker’s wages• raw materials• some utilities• some taxes
©©1999 South-Western College Publishing
![Page 16: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/16.jpg)
16
What isTotal Variable Cost?
What isTotal Variable Cost?The sum of specific
variable costs in the firm’s cost structure
©©1999 South-Western College Publishing
![Page 17: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/17.jpg)
17
Total Fixed cost curveTotal Fixed cost curve
Q
TFC
0
![Page 18: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/18.jpg)
18
Total Variable Cost CurveTotal Variable Cost Curve
Q
TVC
0
![Page 19: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/19.jpg)
19
Total Costs, Sum of Variable and Fixed Cost
Total Costs, Sum of Variable and Fixed Cost
Q
TC
0
TVC
TFC
TC
![Page 20: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/20.jpg)
20
What isAverage Total Cost?
What isAverage Total Cost?
Total cost divided by the quantity of goods produced
ATC = TC/Q
![Page 21: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/21.jpg)
21
What isAverage Fixed Cost?
What isAverage Fixed Cost?Total fixed cost divided by
the quantity of goods produced
AFC = TFC/Q
![Page 22: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/22.jpg)
22
What isAverage Variable Cost?
What isAverage Variable Cost?
Total variable cost divided by the quantity of goods produced
AVC = TVC/Q
![Page 23: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/23.jpg)
23
ATC
AVC
Ave. Fixed Costs
23Q
$
![Page 24: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/24.jpg)
24
What isMarginal Cost?
What isMarginal Cost?
The change in total cost generated by a change in the quantity of a good produced
©©1999 South-Western College Publishing
![Page 25: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/25.jpg)
25
MC = Q
TC =
TVCQ
![Page 26: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/26.jpg)
26
Why does MC = ATC at minimum ATC?
Why does MC = ATC at minimum ATC?
If the margin is above the average, the average increases
If the margin is below the average, the average decrease
©©1999 South-Western College Publishing
![Page 27: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/27.jpg)
27
$
Q
ATC
AVC
MC
Ave. Fixed Costs
27
![Page 28: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/28.jpg)
28
What areEconomies of Scale?
What areEconomies of Scale?
When a firm increases resources in the long run and efficiency increases
©©1999 South-Western College Publishing
![Page 29: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/29.jpg)
29
What can cause economies of scale?
What can cause economies of scale?
• Increased specialization• Specialized capital
equipment• Dimensional factors
![Page 30: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/30.jpg)
30
What areDiseconomies of Scale?
What areDiseconomies of Scale?
When a company increases resources in the long run and efficiency decreases
©©1999 South-Western College Publishing
![Page 31: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/31.jpg)
31
What can cause diseconomies of scale?
What can cause diseconomies of scale?
• Limits to efficient functioning of management
• Layers of bureacracy
![Page 32: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/32.jpg)
32
Costs in the Long Run and Economies of Scale
Costs in the Long Run and Economies of Scale
Output
Cos
t p
er u
nit
AC
Economiesof scale
Diseconomiesof scale
32
![Page 33: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/33.jpg)
33
The Family of Short-Run Average Cost Curves
The Family of Short-Run Average Cost Curves
Output per period
$Long-run
average costATC1
ATC2
ATC3
33
![Page 34: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/34.jpg)
34
What are different views concerning downsizing?What are different views concerning downsizing?
http://www.visioncoach.com
©©1999 South-Western College Publishing
![Page 35: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/35.jpg)
35
What isLabor Productivity?
What isLabor Productivity?
The output per laborer per hour
©©1999 South-Western College Publishing
![Page 36: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/36.jpg)
36
Which is cheaper to pay $10 an hr. to a U.S.
worker or $1 an hour to a foreign worker?
Which is cheaper to pay $10 an hr. to a U.S.
worker or $1 an hour to a foreign worker?
©©1999 South-Western College Publishing
![Page 37: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/37.jpg)
37©©1999 South-Western College Publishing
The $10 an hour may be cheaper if the U.S. worker is a lot more productive than the foreign worker
![Page 38: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/38.jpg)
38
• What is a Fixed Cost?• What is a Variable Cost?• What are Total Costs?• What is Marginal Cost?• What is the Short Run?• What is the Long Run?• What are Economies of Scale?• What are Diseconomies of Scale?
![Page 39: 1 Chapter 8 Costs of Production Costs of Production Principles of Economics by Fred M Gottheil PowerPoint Slides prepared by Ken Long © ©1999 South-Western](https://reader031.vdocument.in/reader031/viewer/2022032310/56649d885503460f94a6d7b5/html5/thumbnails/39.jpg)
39
ENDENDENDEND
©©1999 South-Western College Publishing