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Cost in the Short Run Cost in the Long Run Economies of Scale Economies of Scope The Learning Curve Applications of cost analysis Profit Maximization
Example: Malthus and the Food Crisis
Malthus predicted mass Index of World Food hunger and starvation as Consumption Per Capita diminishing returns Year limited agricultural Index output and the 1948-1952 100 population continued to 1960 115 grow. Why did Malthus’ prediction fail?
r
生产无效率程度（PE）＝OD／OR＝（OD／ OB）×（OB／OR） ＝AE×TE＝配置无效率程度×技术无效率程 度
K1 K3 L2
L1
C0
C1 L3
C2
Labor per year slide 8 slide 9
The Cost-Minimizing Response to an Effluent Fee
Fixed and Variable cost
TC=FC+VC Fixed Cost
–
Fixed cost and sunk cost are often confused
Variable Cost
Short time horizon – most costs are fixed Long time horizon – many costs become variable
Q1 is an isoquant for output Q1. Isocost curve C0 shows all combinations of K and L that can produce Q1 at this cost level. Isocost C2 shows quantity Q1 can be produced with combination K2L2 or K3L3. However, both of these are higher cost combinations than K1L1.
A Firm’s Expansion Path
Capital per year
The expansion path illustrates the least-cost combinations of labor and capital that can be used to produce each level of output in the long-run.
slid源自文库 1
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王正华：春秋航空董事长，2004年始筹 办春秋航空公司，以低成本运营的方式拓 展中国廉价航空业务，相继抛出1元机票 、199元超低票价，被媒体称为垄断航空 市场的冲击者。
Production with One Variable Input (Labor)
Amount of Labor (L) 0 1 2 3 4 5 6 7 8 9 10
M C
VC wL q q
w MP L
M C
slide 14
slide 15
Long Run Cost
Capital E per year Capital is fixed at K1. To produce q1, min cost at K1,L1. If increase output to Q2, min cost is K1 and L3 in short run. Long-Run Expansion Path In LR, can change capital and min costs falls to K2 and L2.
MC ΔVC ΔTC Δq Δq
ATC
slide 12
TC AFC AVC q
slide 13
A Firm’s Short Run Costs
Determinants of Short Run Costs
Assume the wage rate (w) is fixed relative to the number of workers hired Variable costs is the per unit cost of extra labor times the amount of extra labor: wL
Long Run Cost with Economies and Diseconomies of Scale
C
A K2
P K1
Short-Run Expansion Path
Q2 Q1
L1 L2 B L3 D F Labor per year slide 16 slide 17
3
Long-Run Average Cost
200
300
Labor per year slide 11
slide 10
2
Measuring Cost: Which Costs Matter?
Accounting Cost: Actual expenses plus depreciation charges for capital equipment Economic Cost: Cost to a firm of utilizing economic resources in production, including opportunity cost Opportunity Cost: Cost associated with opportunities that are foregone when a firm’s resources are not put to their highest-value use Sunk Cost: Expenditure that has been made and cannot be recovered .Should not influence a firm’s future economic decisions
Q
Increasing Marginal Returns
A
B
C
Q=F(K,L)
2 Q3 = 90 1 1
slide 6
MP
AP L
D
2 3 4 5
Q2 = 75 Q1 = 55
Labor per year
slide 7
Production with two variable inputs
Capital per year
假定企业生产要素投入组合为R ，由于R点并不落 在等产量线上，那么，该企业的技术效率、配置效 率和生产效率没有达到最佳程度的计算公式分别为 技术无效率程度（TE）＝OB／OR 配置无效率程度（AE）＝OD／OB
K2
CO C1 C2 are Three isocost lines
MPL
A
w
Q1
MPK
Economies of Scale
Economies of scale are measured in terms of cost-output elasticity, EC
Cost ($ per unit of output
LMC LAC
EC is the percentage change in the cost of production resulting from a 1-percent increase in output
Marginal Product --10 20 30 20 15 13 4 0 -4 -8
slide 3
Relationships of (AP, MP); (MP, TP)
AP = slope of line from origin to a point on TP, lines b, & c. MP = slope of a tangent to any point on the TP line, lines a & c. Output per Month
•Increasing returns to scale •Constant returns to scale •Decreasing returns to scale
5,000
F
4,000 3,500 3,000
150 $3000 Isocost Line
B A
Following the imposition of the effluent fee of $10/gallon the slope of the isocost changes which the higher cost of water to capital so now combination B is selected.
A
EC C C
Output slide 18
Q Q
MC
AC
EC vs 1
slide 19
EXAMPLE: A Cost Function for the Savings and Loan Industry
Outline
Chapter 03 Production and Cost Anyu Wang Fudan University
Production with One Variable Input (Labor) Production with Two Variable Inputs Return to scale Measuring Cost
Labor
112 C 60 A B
D
Output per Month
30 20 10
Labor
The Law of Diminishing Marginal Returns
E
1970 1980 1990 1995 1998
123 128 137 135 140
0 1 2 3 4 5 6 7 8 9 10per Month
0 1 2 3 4 5 6 7 8 9 10per Month
slide 4
slide 5
1
Stages of Production
Diminishing Marginal Returns
Isoquant
Capital per year Negative Marginal Returns 5 4 3 E •Diminishing MRTS •two special cases? •Inputs are Perfectly Substitutable • Fixed-Proportions Production Function
Capital (machine hours per month) Slope of isocost = -20/40 = -0.50 Prior to regulation the firm chooses to produce an output using 10,000 gallons of water and 2,000 machine-hours of capital at A.
slide 2
Amount Total of Capital (K) Output (Q) 10 10 10 10 10 10 10 10 10 10 10 0 10 30 60 80 95 108 112 112 108 100
Average Product --10 15 20 20 19 18 16 14 12 10
$2000 Isocost Line
Expansion Path C
100 75 B 50 A 25 50 100 150
200 Unit Isoquant 300 Unit Isoquant
2,000
1,000
E
0
5,000 10,000 12,000
C
18,000 20,000
Output of 2,000 Tons of Steel per Month Waste Water (gal./month)
