Lecture 9. The Cost of Production 范里安版《中级微观经济学》ppt
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Chapter 13 - The Costs of Production (1)
smaller amount for each additional worker. Why?
As Jack adds workers, the average worker has
less land to work with and will be less productive.
In general, MPL diminishes as L rises
13 C H A P T E R
The Costs of Production 生产成本
Microeonomics P R I N C I P L E S O F N. Gregory Mankiw
© 2009 South-Western, a part of Cengage Learning, all rights reserved
Quantity of output
3,000 2,5002,000 ຫໍສະໝຸດ ,5001,000 500
0 012345 No. of workers 10
Marginal Product 边际产量
If Jack hires one more worker, his output rises
by the marginal product of labor.
Comparing them helps Jack decide whether he
would benefit from hiring the worker. 边际产量有 助于衡量生产决策的成本和收益
THE COSTS OF PRODUCTION
14
Why MPL Diminishes
Farmer Jack’s output rises by a smaller and
As Jack adds workers, the average worker has
less land to work with and will be less productive.
In general, MPL diminishes as L rises
13 C H A P T E R
The Costs of Production 生产成本
Microeonomics P R I N C I P L E S O F N. Gregory Mankiw
© 2009 South-Western, a part of Cengage Learning, all rights reserved
Quantity of output
3,000 2,5002,000 ຫໍສະໝຸດ ,5001,000 500
0 012345 No. of workers 10
Marginal Product 边际产量
If Jack hires one more worker, his output rises
by the marginal product of labor.
Comparing them helps Jack decide whether he
would benefit from hiring the worker. 边际产量有 助于衡量生产决策的成本和收益
THE COSTS OF PRODUCTION
14
Why MPL Diminishes
Farmer Jack’s output rises by a smaller and
范里安微观经济学(第九版)Chapter 7PPT课件
Cost Minimizing Input Choice
How does a firm select inputs to produce a given output at minimum cost?
Assumptions
◦ Two Inputs: Labor (L) and capital (K) ◦ Price of labor: wage rate (w) ◦ The price of capital (r)
◦ A line showing all combinations of L & K that can be purchased for the same cost
◦ Total cost of production is sum of firm’s labor cost, wL, and its capital cost, rK:
Choosing Inputs
We will address how to minimize cost for a given level of output by combining isocosts with isoquants
We choose the output we wish to produce and then determine how to do that at minimum cost
r = depreciation rate + interest rate Or rental rate if not purchasing These are equal in a competitive capital market
The Isocost Line
The Isocost Line
范里安《微观经济学(高级教程)》课后习题详解(对偶)
第6章 对 偶1．成本函数为(){}1212,,min ,c w w y w w y =。
生产函数是什么？条件要素需求函数是什么？The cost function is (){}1212,,min ,c w w y w w y =. What is the production function? What are the conditional factor demands?解：由成本函数(){}1212,,min ,c w w y w w y =可以知道：两种要素是互相替代的，因此生 产函数是：()1212,f x x x x =+条件要素需求函数是：2．成本函数为()()1212,,c w w y y w w =+。
条件要素需求是什么？生产函数是什么？ The cost function is ()()1212,,c w w y y w w =+. What are the conditional factor demands? What is the production function?解：由成本函数()()1212,,c w w y y w w =+的形式可以看出，两种要素是互补的，因此生产函数是里昂惕夫技术：(){}1212,min ,f x x x x =条件要素需求是：12x x y ==。
3．成本函数为()1212,,a b c w w y w w y =。
a 和b 有什么关系？The cost function is ()1212,,a b c w w y w w y =. What do we know about a and b ？ 答：由于成本函数是w 的非减函数，所以0a ＞，0b ＞。
由于成本函数是w 的凹函数，所以成本函数关于w 的二阶导数为负：由于成本函数是w 的一次齐次函数，所以有：()()()()121212,,aba b a b c tw tw y tw tw t w w +==所以，1a b +=。
The Cost of ProductionPPT课件
Components, labor
Software: most costs are sunk
Cost of developing the software
Chapter 1
Slide 11
Measuring Cost: Which Costs Matter?
Pizza
Largest cost component is fixed
130
180
6
50
150
200
7
50
175
225
8
50
204
254
9
50
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292
10
50
300
350
11
50
385
435
Marginal Cost (MC)
--50 28 20 14 18 20 25 29 38 58 85
Average Fixed Cost (AFC)
Average Variable
Decreasing returns and cost
With decreasing returns, output is decreasing relative to input and variable cost and total cost will rise relative to output.
Marginal Cost (MC) is the cost of expanding output by one unit. Since fixed cost have no impact on marginal cost, it can be written as:
MCVCTC Q Q
Software: most costs are sunk
Cost of developing the software
Chapter 1
Slide 11
Measuring Cost: Which Costs Matter?
Pizza
Largest cost component is fixed
130
180
6
50
150
200
7
50
175
225
8
50
204
254
9
50
242
292
10
50
300
350
11
50
385
435
Marginal Cost (MC)
--50 28 20 14 18 20 25 29 38 58 85
Average Fixed Cost (AFC)
Average Variable
Decreasing returns and cost
With decreasing returns, output is decreasing relative to input and variable cost and total cost will rise relative to output.
Marginal Cost (MC) is the cost of expanding output by one unit. Since fixed cost have no impact on marginal cost, it can be written as:
MCVCTC Q Q
The Cost of Production
• Implicit costs are input costs that do not require an outlay of money by the firm.
© 2007 Thomson South-Western
Economic Profit versus Accounting Profit • Economists measure a firm’s economic profit as
© 2007 Thomson South-Western
Total Revenue, Total Cost, and Profit • Total Revenue
• The amount a firm receives for the sale of its output.
• Total Cost
The Production Function • Marginal Product
• The marginal product of any input in the production process is the increase in output that arises from an additional unit of that input.
• Explicit and Implicit Costs
• A firm’s cost of production include explicit costs and implicit costs.
• Explicit costs are input costs that require a direct outlay of money by the firm.
– The production function shows the relationship between quantity of inputs used to make a good and the quantity of output of that good.
© 2007 Thomson South-Western
Economic Profit versus Accounting Profit • Economists measure a firm’s economic profit as
© 2007 Thomson South-Western
Total Revenue, Total Cost, and Profit • Total Revenue
• The amount a firm receives for the sale of its output.
• Total Cost
The Production Function • Marginal Product
• The marginal product of any input in the production process is the increase in output that arises from an additional unit of that input.
• Explicit and Implicit Costs
• A firm’s cost of production include explicit costs and implicit costs.
• Explicit costs are input costs that require a direct outlay of money by the firm.
– The production function shows the relationship between quantity of inputs used to make a good and the quantity of output of that good.
(微观经济学英文课件)Chap 13 The costs of production
Harcourt, Inc. items and derived items copyright © 2001 btors of production
labor,L
capital，K
natural resource，N entrepreneur, E
So ….. production function Q=f( K , L, N, E)
TC TVC
TFC Q
Average cost
Average Fixed Costs (AFC)
Average Variable Costs (AVC)
Average Total Costs (AC)
AC = AFC + AVC
A F C = F ixed co st = F C Q u an tity Q
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc.
Total cost
Total Fixed Costs (TFC) Total Variable Costs (TVC) Total Costs (TC)
–
–
–
–
30 30 60 90
19 24.5 30 54.5
16 21.7 20 41.7
15 20 15 35
20 20 12 32
24 20.7 10 30.7
26 21.4 8.6 30
30 22,5 7.5 30
35 23.9 6.7 30.6
40 25.5 6 31.5
45 27.3 5.5 32.8
Explicit costs Vs. Implicit costs
范里安varian中级微观经济学英文课件(中山大学·2004)
The circular flow of economic activities.
product market market
factor
The product market and the factor market.
The market relation is mutual and voluntary.
•Fig.
Convexity x2
(y1,y2)
Averaged bundle
(x1,x2) x1
Chapter 4
(as a way to describe preferences)
Utilities
•Essential ordinal utilities, versus
•convenient cardinal utility functions.
m/p2
Budget line
Slope
= - p’1/p2
m/p’1
Slope = - p1/p2 m/p1
Taxes, quantity taxes, value taxes
(ad valorem taxes), and lump-sum
taxAess. ubsidy
is the opposite of a quantity tax.
commodities,
including
goods and services.
Main economic activities:
Consumption, Production, and Exchange.
Microeconomics and macroeconomics:
to show the market mechanism (the invisible hand), to supplement it.
The Costs of Production课件讲义
Implicit costs do not involve a direct money outlay.
Economic Profit versus Accounting Profit
Economists measure a firm’s economic profit as total revenue minus all the opportunity costs (explicit and implicit). Accountants measure the accounting profit as the firm’s total revenue minus only the firm’s explicit costs. In other words, they ignore the implicit costs.
50 40 30 20 10
Cost of Factory
$30 30 30 30 30 30
Cost of Workers
Total Cost of Inputs
$0
$301040Fra bibliotek2050
30
60
40
70
50
80
The Production Function
The production function shows the relationship between quantity of inputs used to make a good and the quantity of output of that good.
Profit = Total revenue - Total cost
Costs as Opportunity Costs
Economic Profit versus Accounting Profit
Economists measure a firm’s economic profit as total revenue minus all the opportunity costs (explicit and implicit). Accountants measure the accounting profit as the firm’s total revenue minus only the firm’s explicit costs. In other words, they ignore the implicit costs.
50 40 30 20 10
Cost of Factory
$30 30 30 30 30 30
Cost of Workers
Total Cost of Inputs
$0
$301040Fra bibliotek2050
30
60
40
70
50
80
The Production Function
The production function shows the relationship between quantity of inputs used to make a good and the quantity of output of that good.
Profit = Total revenue - Total cost
Costs as Opportunity Costs
Chapter 13 The Costs of Production (1)
7
Figure 1
Economists versus Accountants
Economists include all opportunity costs when analyzing a firm, whereas accountants measure only explicit costs. Therefore, economic profit is smaller than accounting profit.
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
4
What are Costs?
• Explicit costs
– Input costs that require an outlay of money by the firm
• Implicit costs
– Input costs that do not require an outlay of money by the firm – Ignored by accountants
3
What are Costs?
• Costs as opportunity costs
– The cost of something is what you give up to get it
范里安微观经济学(第九版)chapter 8
A Competitive Firm – Losses
Price
C D B MC
ATC
A
P = MR AVC
q*
Output
Short Run Production
Why would a firm produce at a loss?
◦ Might think price will increase in near future ◦ Shutting down and starting up could be costly
A
P = MR AVC
F
E
q*
Output
Competitive Firm – Short Run Supply
Supply curve tells how much output will be produced at different prices Competitive firms determine quantity to produce where P = MC
Profit Maximization – Short Run
Cost, Revenue, Profit ($s per year) Profits are maximized where MR (slope at A) and MC (slope at B) are equal
C(q)
R(q)
Choosing Output: Short Run
The point where MR = MC, the profit maximizing output is chosen
◦ MR = MC at quantity, q*, of 8 ◦ At a quantity less than 8, MR > MC, so more profit can be gained by increasing output ◦ At a quantity greater than 8, MC > MR, increasing output will decrease profits
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8
Fixed, Variable & Total Cost
$/output unit
Functions
c(y)
c(y)cv(y)F
cv(y)
F
Fห้องสมุดไป่ตู้
y
9
Average Cost Curves
◊ As the firm’s total cost function is
c(y)cv(y)F
◊ For y > 0, the firm’s average total cost function is ATC(y) F cv(y) yy AFC(y)AVC(y)
◊ For software firms, most costs are sunk. The company should try to recoup its investment by selling as many products as possible.
◊ For the pizzeria, most costs are fixed, but not sunk.
◊ Marginal cost is the rate-of-change of production cost as the output level changes. That is, MC (y)ccv(y) y y
◊ MC is the slope of both the variable cost and the total cost functions.
y
13
Marginal & Average Cost
5
Fixed, Variable & Total Cost
Functions
◊ Suppose F is the total cost to a firm of its short-run fixed inputs.
◊ cv(y) is the total cost to a firm of its variable inputs when producing output.
Intermediate Microeconomics
Lecture Nine
The Cost of Production
1
Cost Minimization with Single Input
Cost
C
c = c(y) = wf-1(y) is
the cost function.
Convexity of production function means concavity of cost function
◊ Conversely, cv(y) is the integral of MC(y)
y
cv(y)0 M(Cz)dz
12
Marginal Cost Function
$/output unit
y
cv(y)0 M(Cz)dz MC
Area is the variable cost of making y’ units
10
Average Cost Curves
$/output unit
AT (y) C AF (y) C AV (y)C
Since AFC(y) → 0 as y → ∞, ATC(y) → AVC(y) as y → ∞.
AC AVC
AFC
AFC y
11
Marginal Cost Function
Output Level y
4
Cost Minimization with Two Input in Short Run
◊ Now consider a firm using two inputs to make one output.
◊ In short run, the level of input 2 is fixed.
◊ That is Fw2x2
cv(y)w1fx 21(y)
◊ Note: cv(y) depends upon the levels of the fixed inputs.
◊ The total cost c(y) is could be written as
c(y)cv(y)F
6
Sunk Cost
7
Types of Cost Curves
EXAMPLES Which costs Matter?
◊ Consider the personal computer industry, the software industry and the pizzeria business.
◊ For PC firms, most costs are variable. As competition is intense, profitability depends on the ability to keep costs down.
◊ Sunk costs are different from fixed costs:
➢ If an equipment can be resold, the cost is not entirely sunk. Only the difference between the cost of new and used equipment is sunk.
◊ The production function is yf(x1,x2)
◊ x1 is the smallest amount of input 1 to produce output level y: x1 fx21(y)
◊ If the price of x1, x2 is w1 and w2, the cost function is c (y ) w 1 x 1 w 2 x 2 w 1 fx 2 1 (y ) w 2 x 2
◊ Sunk cost is the expenditure that has been made and cannot be recovered.
◊ A sunk cost should not influence the firm’s decisions.
◊ Because it has no alternative use, its opportunity cost is zero.
Fixed, Variable & Total Cost
$/output unit
Functions
c(y)
c(y)cv(y)F
cv(y)
F
Fห้องสมุดไป่ตู้
y
9
Average Cost Curves
◊ As the firm’s total cost function is
c(y)cv(y)F
◊ For y > 0, the firm’s average total cost function is ATC(y) F cv(y) yy AFC(y)AVC(y)
◊ For software firms, most costs are sunk. The company should try to recoup its investment by selling as many products as possible.
◊ For the pizzeria, most costs are fixed, but not sunk.
◊ Marginal cost is the rate-of-change of production cost as the output level changes. That is, MC (y)ccv(y) y y
◊ MC is the slope of both the variable cost and the total cost functions.
y
13
Marginal & Average Cost
5
Fixed, Variable & Total Cost
Functions
◊ Suppose F is the total cost to a firm of its short-run fixed inputs.
◊ cv(y) is the total cost to a firm of its variable inputs when producing output.
Intermediate Microeconomics
Lecture Nine
The Cost of Production
1
Cost Minimization with Single Input
Cost
C
c = c(y) = wf-1(y) is
the cost function.
Convexity of production function means concavity of cost function
◊ Conversely, cv(y) is the integral of MC(y)
y
cv(y)0 M(Cz)dz
12
Marginal Cost Function
$/output unit
y
cv(y)0 M(Cz)dz MC
Area is the variable cost of making y’ units
10
Average Cost Curves
$/output unit
AT (y) C AF (y) C AV (y)C
Since AFC(y) → 0 as y → ∞, ATC(y) → AVC(y) as y → ∞.
AC AVC
AFC
AFC y
11
Marginal Cost Function
Output Level y
4
Cost Minimization with Two Input in Short Run
◊ Now consider a firm using two inputs to make one output.
◊ In short run, the level of input 2 is fixed.
◊ That is Fw2x2
cv(y)w1fx 21(y)
◊ Note: cv(y) depends upon the levels of the fixed inputs.
◊ The total cost c(y) is could be written as
c(y)cv(y)F
6
Sunk Cost
7
Types of Cost Curves
EXAMPLES Which costs Matter?
◊ Consider the personal computer industry, the software industry and the pizzeria business.
◊ For PC firms, most costs are variable. As competition is intense, profitability depends on the ability to keep costs down.
◊ Sunk costs are different from fixed costs:
➢ If an equipment can be resold, the cost is not entirely sunk. Only the difference between the cost of new and used equipment is sunk.
◊ The production function is yf(x1,x2)
◊ x1 is the smallest amount of input 1 to produce output level y: x1 fx21(y)
◊ If the price of x1, x2 is w1 and w2, the cost function is c (y ) w 1 x 1 w 2 x 2 w 1 fx 2 1 (y ) w 2 x 2
◊ Sunk cost is the expenditure that has been made and cannot be recovered.
◊ A sunk cost should not influence the firm’s decisions.
◊ Because it has no alternative use, its opportunity cost is zero.