theory of production
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Firms Cost vs. Profit Shortrun
Production ... max. Cost ... min.
Longrun Production Cost Economies
Returns Scale Scope
Firmas Koste vs. Wins KORT termyn
Produksie ... maks. Koste ... min.
LANG termyn Produksie Koste Ekonomieë
Skaal opbrengste Skaal voordele Omvangs voordele
Chapter Layout Hoofstuk Uitleg
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Define all concepts Distinguish between
concepts Explain relationship
between Production & Costs Short run Long run
Calculate and graph TP, AP, MP, TC, AC, MC, TVC, TFC, AVC, AFC
Definieer alle konsepte Onderskei tussen alle
konsepte Verduidelik die
verwantskap tussen Produksie & Koste Kort termyn Langtermyn
Bereken en teken TP, AP, MP, TC, AC, MC, TVC, TFC, AVC, AFC
Outcomes Uitkomstes
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Different types of firms Verskillende tipe firmas
Intro Intro
FORMAL INFORMAL
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One goal
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Same concepts: Ch.10-13 Different ‘data’
Total Sum of ...
Average Total divided by Qty
Marginal Change in Total ‘per extra’ unit
Selfde konsepte: Hfs.10-13 Ander ‘data’
Totaal Som van ...
Gemiddeld Totaal gedeel deur Qty
Grens (MARGINAAL) Verandering in Totaal ‘per ekstra’ eenheid
Basic Concepts Basiese Begrippe
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Basic Concepts
TR, TP, TC
AR , AP, AC
MR, MP, MC
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Basic Concepts Basiese Begrippe
KosteCost
InkomeRevenue
ProduksieProduction
Totale(Total)
TC = AC x QTC = TVC + TFC
TR = P x Q TP = AP x N
Gemiddeld
(Average)
AC = TC ÷ QAC = AVC + AFC
AR = TR ÷ QAR = P.Q ÷ Q
AP = TP ÷ N
Grens(Marginal
)
MC = ΔTC ÷ ΔQ
MR = ΔTR ÷ ΔQMP = ΔTP ÷
ΔN
Wins?? NB. Dieselfde konsepte
(berekeninge), net ander data
N ... veranderlike inset (arbeid) Q ... eenhede produksie
Profit?? NB. Same concepts
(calculations) other data N ... variable input (labour) Q ... Units produced
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Short vs Long Kort vs Lang
KT: Ten minste EEN van die insette kan nie verander word nie.
Coke fabriek LT: ALLE insette veranderlik. Nuwe fabriek te loots Klere
SR: At least one of the inputs is fixed Coke factory
LR: All inputs are variable New factory Clothing
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Normal Profit
Min profit
Accounting Profit
TR – Explicit Costs
Economic Profit
TR – (Implicit + Explicit
Costs)
Abnormal Profit
Profit > I + E
Normale Wins
Min Wins
Rekenkundige wins
TR – Eksplisiete koste Ekonomiese Wins
TR – (Implisiete + Eksplisiete Kostes)
Abnormale Wins
Wins > I + E
Profit (π) Wins (π)Is die geldbedrae
wat die firma betaal om PF en ander insette te
koop of huur.
Geleentheidskoste wat nie in die
geldelike betalings weerspieel word
nie.
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Fig.11-1 WINS / PROFIT
Ekonoom
Economist
Eksplisiete koste
w, i, r
Implisiete koste
π (Normale Wins)
Ekonomiese wins
(Abnormale Wins)
Eksplisiete koste
w, i, r
Rekenkundige wins
Accounting Profit
TR-TC
Rekenkundige
Accountant
Inkomste
Income
Inkomste
11
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Firms SUPPLY products Main Goal:
Maximise profit How?
Maximise the positive difference between …
TR & TC SR-Assumptions
1 product Homogenous, devisable Inputs can be divided and can
be used in limitless qty’s. Fixed production function Fixed Price (inputs & product) Fixed inputs + 1 variable
input (eg. labour)
Firmas bied produkte aan (AANBOD)
Hoofdoelwit: Wins maksimeer
Hoe? Max. positiewe verskil tussen ... TR & TC
SR(KT) – Aannames 1 produk Homogeen, verdeelbaar Insette kan in oneindig
verdeelbare Qty gebruik word. Vaste produksie funksie Gegewe Pryse (insette & produk) Vaste insette + 1 veranderlike
inset (bv arbeid)
SR KT
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Fixed: FC, TFC, AFC Does not change with Q
Variable: VC, TVC, AVC Changes as Q changes
NB. Shape (of curves)
Min & Max (MAT)
Intercepts
Short run Long run
Fixed (VAS): FC, TFC, AFC verander NIE
Veranderlik: VC, AVC,
TVC verander met Q
NB. Vorm van kurwes
Waar min. & Maks. (MAT)
Snypunte
Kort Termyn Lang Termyn
Basic Concepts Basiese Begrippe
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MAXIMISE Define
Production Production function Law of diminishing
marginal returns Describe
Inputs / technology How can firms expand
production? LR SR General
Fixed Inputs Variable Inputs
MAKSIMEER Defineer
Produksie Produksie funksie Wet v. Dalende
meeropbrengs Omskryf
Insette / tegnologie Hoe kan firmas produksie
vermeerder? LR (LT) SR (KT) Algemeen
Vaste Insette Veranderlike Insette
Production Produksie
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Tbl. 11-1LAND LABOUR TP
Fixed Variable Total ProductQ N
20 0 0
20 1 16
20 2 44
20 3 78
20 4 113
20 5 145
20 6 171
20 7 190
20 8 200
20 9 200
20 10 187
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Law of diminishing returns Wet van dalende meeropbrengs
impr
ove
pc
verb
eter
pc
less productive pc
minder produktie
f pc
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Tbl. 11-2 (MAT)LAND LABOUR TP MP AP
Fixed Variable TP = ΣMP
3rd Max.
MP = (TPx-TPx-1)÷N
1st Max.
AP = TP/N
2nd Max.Q N
20 0 0 - -
20 1 0+16= 16 (16-0)/1= 16 16÷1= 16.00
20 2 16+28= 44 44-16= 28 44÷2= 22.00
20 3 44+34= 78 78-44= 34 16÷3= 26.00
20 4 16+28+34+35= 113
113-78= 35 16÷4= 28.25
20 5 145 145-113= 32 16÷5= 29.00
20 6 171 171-145= 26 16÷6= 28.50
20 7 190 190-171= 19 16÷7= 27.14
20 8 200 200-190= 10 16÷8= 25.00
20 9 200 200-200= 0 16÷9= 22.22
20 10 187 187-200= -13 16÷10= 18.70
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Fig. 11-2 TP, AP, MP van arbeid / of labour
Orde van bereik van maksimering
Order of reaching maximisation
MPAPTP
MP sny/cuts APmax
AP styg/increases MP>AP AP daal terwyl AP>MP TPmax waar MP=0
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Tbl. 11-2 (MAT)LAND LABOUR TP MP AP
Fixed Variable TP = ΣMP
3rd Max.
MP = (TPx-TPx-1)÷N
1st Max.
AP = TP/N
2nd Max.Q N
20 0 0 - -
20 1 0+16= 16 (16-0)/1= 16 16÷1= 16.00
20 2 16+28= 44 44-16= 28 44÷2= 22.00
20 3 44+34= 78 78-44= 34 16÷3= 26.00
20 4 16+28+34+35= 113
113-78= 35 16÷4= 28.25
20 5 145 145-113= 32 16÷5= 29.00
20 6 171 171-145= 26 16÷6= 28.50
20 7 190 190-171= 19 16÷7= 27.14
20 8 200 200-190= 10 16÷8= 25.00
20 9 200 200-200= 0 16÷9= 22.22
20 10 187 187-200= -13 16÷10= 18.70
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Fixed Costs i.e. LAND Total is FIXED
Variable Costs i.e. LABOUR Total CHANGES
NB. per PRODUCT (Q)
Vaste Koste bv. GROND Totaal is VAS
Veranderlike Koste bv. ARBEID Totaal VERANDER
NB. per PRODUK (Q)
Costs Kostes
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Fig.11-4 3 Koste krommes / Cost curves
Vaste koste (TFC)
Fixed Costs (TFC)
Veranderlike koste
(TVC)
Variable Costs (TVC)
Totale koste (TC)
Total Costs (TC)... AVERAGE ... T ÷ Q produced / produseer
... MARGINAL ... T ÷ Q produced / produseer
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Tbl. 11-3
Land Labour
TP TFC TVC TC
N Q … produced
= TC - TVC = TC - TFC = TFC + TVC
20 0 0 9 000 0 9 000
20 1 16 9 000 2 400 11 400
20 2 44 9 000 4 800 13 800
20 3 78 9 000 7 200 16 200
20 4 113 9 000 9 600 18 600
20 5 145 9 000 12 000 21 000
20 6 171 9 000 14 400 23 400
20 7 190 9 000 16 800 25 800
20 8 200 9 000 19 200 28 200
20 9 200 9 000 21 600 30 600
20 10 187 9 000 24 000 33 000
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OEFEN
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Oefen by die huis!!!!!
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AANBOD:
Teorie van produksie & koste
SUPPLY: Theory of production & costs
Mohr & Fourie: Chapter / Hoofstuk 11
ECON121_2011
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Long run vs. short run
Econ profit vs. Acc profit
Fixed cost vs. variable cost
Law of diminishing returns
Order of max
Lang termyn vs. Kort termyn
Ekon wins vs. Rek wins
Vaste koste vs. Veranderlike koste
Wet van dalende meeropbrengs
Orde van maks
RECAP RECAP
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Basic Concepts
TR, TP, TC
AR , AP, AC
MR, MP, MC
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Basic Concepts Basiese Begrippe
KosteCost
InkomeRevenue
ProduksieProduction
Totale(Total)
TC = AC x QTC = TVC + TFC
TR = P x Q TP = AP x N
Gemiddeld
(Average)
AC = TC ÷ QAC = AVC + AFC
AR = TR ÷ QAR = P.Q ÷ Q
AP = TP ÷ N
Grens(Marginal
)
MC = ΔTC ÷ ΔQ
MR = ΔTR ÷ ΔQMP = ΔTP ÷
ΔN
Wins?? NB. Dieselfde konsepte
(berekeninge), net ander data
N ... veranderlike inset (arbeid) Q ... eenhede produksie
Profit?? NB. Same concepts
(calculations) other data N ... variable input (labour) Q ... Units produced
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Fig. 11-2 TP, AP, MP van arbeid / of labour
Orde van bereik van maksimering
Order of reaching maximisation
MPAPTP
MP sny/cuts APmax
AP styg/increases MP>AP AP daal terwyl AP>MP TPmax waar MP=0
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Fig.11-4 3 Koste krommes / Cost curves
Vaste koste (TFC)
Fixed Costs (TFC)
Veranderlike koste
(TVC)
Variable Costs (TVC)
Totale koste (TC)
Total Costs (TC)... AVERAGE ... T ÷ Q produced / produseer
... MARGINAL ... T ÷ Q produced / produseer
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There to analyse a firm’s output decisions.
AFC = TFC/TP
AVC = TVC/TP
AC = TC/TP
Ontleed die firma se produksiebesluit.
AFC = TFC/TP
AVC = TVC/TP
AC = TC/TP
Average and marginal cost Gemiddelde en grenskoste
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Figuur 11-5 Grens- en gemiddelde koste
Slegs een MC 3 Gemiddelde krommes AFC soos produksie AVC bereik min en
dan. AC bereik min en
dan.
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Tabel 11-3 & 11-4N TP
(Q)
TFC AFC TVC AVC TC AC MC
20 0 0 9 000 - 0 - 9 000 - -
20 1 16 9 000 562.50 2 400 150.00 11 400 712.5 150.00
20 2 44 9 000 204.55 4 800 109.09 13 800 313.64 85.71
20 3 78 9 000 115.38 7 200 92.31 16 200 207.69 70.59
20 4 113 9 000 79.65 9 600 84.96 18 600 164.60 68.57
20 5 145 9 000 62.07 12 000 82.76 21 000 144.83 75.00
20 6 171 9 000 52.63 14 400 84.21 23 400 136.84 92.31
20 7 190 9 000 47.37 16 800 88.42 25 800 135.79 126.32
20 8 200 9 000 45.00 19 200 96.00 28 200 141.00 240.00
20 9 200 9 000 45.00 21 600 108.00 30 600 153.00
20 10 187 9 000 48.13 24 000 128.34 33 000 176.47
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Figuur 11-5 Grens- en gemiddelde koste
Orde van minimums Order of minimima
MC AVC AC (ATC)
AFC AFC ≠ 0
MC sny / cuts AVCmin & ACmin
AC > AFC & AVC
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Figuur 11-7 Verband tussen produksie en koste
Produksie / Production … max … MP max. 1st MP sny / cuts Apmaks
Kostes / Costs … min … MC min. 1st MC sny/cuts AVCmin
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Now for the Long Run (LR)
Nou vir die LANG termyn (LR)
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NO fixed inputs
NO law of diminishing returns
NB concepts1. Returns to scale2. Economies of scale3. Economies of scope
GEEN vaste insette nie
GEEN Wet van dalende meeropbrengs nie
Belangrike begrippe:1. Skaalopbrengs
(Returns to scale)2. Skaalvoordele
(Economies of scale)3. Omvangsvoordele
(Economies of scope)
LR production & costs LR produksie & koste
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Compares % in output to % in input
Constant RTS: % output = % input
Increasing RTS: % output > % input
Decreasing RTS: % output < % input
Vergelyk % in uitsette met ‘n % in insette
Konstante RTS: % uitset = % inset
Stygende RTS: % uitset > % inset
Dalende RTS: % uitset < % inset
Returns to scale (RTS) Skaalopbrengs
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Cost per Unit
Cost per unit produced decreases as production increases
Gets cheaper per unit the more you produce
Normally a high fixed cost (high start-up cost)
Koste per Eenheid
Koste per eenheid daal soos produksie styg
Word goedkoper per eenheid om meer te produseer
Gewoonlik ‘n duur vaste koste
Economies of Scale Skaalvoordele
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Cost per Unit
Cost per unit produced increases as production increases
Koste per Eenheid
Koste per eenheid styg soos produksie styg
Diseconomies of Scale Skaalnadele
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Related production
Cost saving if firm produces related products
Use same capital intensive inputs for production of both products
Dairy – milk & butter Automobile factory – cars
& mini-vans
Verwante produksie
Kostebesparing indien een firma verwante produkte vervaardig
Gebruik duur, kapitaal intensiewe insette vir beide produkte se vervaardiging
Melkery – Melk & botter Motorvervaardiger – karre
& mini-busse
Economies of Scope Omvangsvoordele
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LRAC & LRMC influenced by … (dis)-economies of scale
3 Assumptions (LRAC)
1. Fixed price of PFs
2. Fixed technology & quality of PFs
3. Firm schoose lowest cost combination of PFs
LRAC & LRMC word beïnvloed deur ...
skaal voordele en nadele.
3 aannames (LRAC)
1. Prys van PFe is gegewe
2. Tegnologie en kwaliteit van PFe is gegewe
3. Firmas kies die laagste koste-kombinasie van produksie faktore
LRMC & LRAC LRMC & LRAC
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Fig.11-9 LRAC
AC AC
Constant cost
Economies of Scale
Dis-Economies of Scale
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Fig.11-10 LRMC & LRAC
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Fig.11-11 LRAC
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Assumptions LR vs SR
Profit (Q) Profit = Income – Costs Costs: Implicit vs. Explicit
Production (N) maximise MAT Law of Diminishing Returns
Costs (Q) Minimise MAT
LR (dis)economies Returns to scale Economies of scale Economies of scope
Aannames LR vs SR
Wins (Q) Wins = Inkome – Koste Kostes: Implisiet vs.
Eksplisiet Produksie (N)
maksimeer MAT Wet van Dalende
Meeropbrengs Koste (Q)
minimeer MAT
LR voor/nadele Skaal opbrengs Skaal voor/nadele Omvangsvoordele
Recap Hersien
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Question: 4.1 4.2 4.4 4.5 4.6 4.7 4.8
Vraag: 4.1 4.2 4.4 4.5 4.6 4.7 4.8
Workbook CH 5 Werkboek Hfsk 5
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QUESTION 5 VRAAG 5
Units of Land
Units of Capital
Units of Labour
NTP AP MP
15 5 0
15 5 1 4
15 5 2 7
15 5 3 19
15 5 4 7
15 5 5 8
15 5 6 42
15 5 7 5
15 5 8 2
15 5 9 50
15 5 10 -3
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Question: 4.1 Complete the table 4.2 Which factors of production are fixed and which are
variable 4.4 At how many units of N is the highest TP reached? 4.5 At how many units of N is the highest MP reached? 4.6 At how many units of N is the highest AP reached? 4.7 At which point does the law of diminishing returns set
in? 4.8 At which point does TP start to increase at a
decreasing rate?
Workbook CH 5 Werkboek Hfsk 5
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Oefen by die huis!!!!!