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Output and costs (2)

Output and costs (2)






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    Output and costs (2) Output and costs (2) Presentation Transcript

    • Output and Costs
      Rabia Khan
      Syed Abdul Haseeb
      Abdul Wahid Khan
    • Time frames
      The two major types are:
    • Short-run time frame
      A time frame in which the quantities of some resources are fixed (Technology, building and capital)
      A “plant” is a collection of fixed resources of the firm
      For short run time frames increasing the quantity of variable inputs increases the output of the firm. (e.gLabour)
      As the term implies it is easily reversible.
    • Long-run time frame
      A time frame in which the quantities of all the resources can be varied.
      Therefore the firm’s plant is changed, and so it is relatively harder to reverse long run decisions.
    • Sunk costs
      The past cost of buying a plant without any resale value is known as a sunk cost, the sunk cost does not influence the firm’s decisions. Short run and long run costs, however do.
    • Short run technology constraints
      Total product
      Marginal product
      Average product
      Product schedules and product curves help illustrate these concepts.
    • The following table explains how total, average and marginal costs are displayed.
    • Total Product Curve
      This is a total product
      The total product curve is similar to the PPF.
      It separates attainable output levels from unattainable output levels in the short run.
    • Marginal Product Curve
      It shows the marginal product of labor curve and how the marginal product curve relates to the total product curve.
      The first worker hired produces 4 units of output
      The second worker hired produces 6 units of output and total product becomes 10 units, so on …
    • To make a graph of the marginal product of labor, we can stack the bars in the previous graph side by side.
      The marginal product of labor curve passes through the mid-points of these bars.
      This gives us
      Increasing marginal returns initially Diminishing marginal returns eventually
    • Average Product Curve
      shows the average product curve and its relationship with the marginal product curve.
      When marginal product exceeds average product, average product increases
      When marginal product is below average product, average product decreases
      When marginal product equals average product, average product is at its maximum
    • Short-run Costs
      This curve shows ;
      Marginal Cost
      Average Total Cost
      Average Variable Cost
      Average Fixed Cost
    • Short-run costs
    • Long-run Cost
    • Economies and Diseconomies of scale
    • Constant returns to scale
      Features of a firm’s technology that lead to constant long-run average cost as output increases. Therefore in this case the Long-run average cost curve will be a horizontal straight line.
      This would mean for a certain increase in input let’s say “x” the increase in output would be “x” as well.
    • Minimum efficient scale
      At a certain point in the Long-run average cost curve, the smallest quantity of output where the cost is at it’s lowest level. It is efficient for the firm to balance it’s output and costs at this level, since a low cost is offering a fairly high output.
    • Comparison