Chapter8[1]
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The document discusses key concepts in production theory and short-run costs, including: - Inputs can be variable or fixed, depending on how readily usage can be changed - In the short-run, at least one input is fixed, while output is varied using variable inputs like labor - Total, average, and marginal products are calculated from production functions and exhibit diminishing returns - Short-run costs include total variable costs, total fixed costs, and total costs, which influence average and marginal cost curves.
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1) A firm is an organization that employs resources to produce goods or services with the aim of making a profit. A firm's cost of production is the total expenditures required to produce a specific level of output.
2) Costs include explicit costs like wages that are directly paid, and implicit costs like foregone opportunity that is not directly paid. Short-run costs are divided into fixed costs that do not vary with output and variable costs that do vary.
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I. The document discusses production and cost analysis concepts including: production functions, total, marginal, and average product, isoquants, isocosts, and cost minimization.
II. It also discusses cost analysis concepts such as: total, variable, and fixed costs. Total cost is the sum of variable and fixed costs. Variable costs vary with output while fixed costs do not.
III. Multi-product cost functions are discussed as well as economies of scope which occur when it is cheaper to produce multiple products jointly rather than separately.
Output and costs (2)
The document discusses short-run and long-run time frames. In the short-run, some resources like capital are fixed, while variable inputs like labor can be adjusted. In the long-run, all resources can be varied. It also discusses concepts like total, average, and marginal product curves; total, average, and marginal costs; as well as economies and diseconomies of scale. Constant returns to scale occur when average costs remain constant as output increases in the long-run. Minimum efficient scale is the lowest point on the long-run average cost curve, where costs are lowest for a given output level.
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This document discusses cost analysis and contains the following key points:
1. Cost analysis is important for managers to find lower cost production methods and compete against firms with lower costs. It examines concepts like fixed, variable, average, and marginal costs.
2. Short-run and long-run cost functions are presented, showing relationships between costs and output. Economies of scale can cause long-run average costs to decline with increased output up to a point.
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The main objectives of this presentation are to study about Production theory, to study about Production efficiency, to study about cost theory, To relate the cost with production, to study to achieve maximum profit for the organization and to study to take decision which will result maximum benefit for the organization. This report shows what a can a good manager do maximize production efficiency as well as economic efficiency. Not only this one of the most important matter that should be kept in consideration is that, the duration for continuing the production for a product in a competitive market situation. The main objective of an organization is to maximize it profit. Some simultaneous process are related to run an organization and to achieve its goal such as production, creating the demand of the product, selling the product with a profitable cost. That is why a manager should know about the total cost for the production and for the operation. Total cost per product can be reduced by increasing production efficiency. An organization should take this decision how will the increase their production efficiency and at the same time they have to decide how will they use their resources to get maximum output.
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This document discusses cost analysis and contains the following key points:
1. Cost analysis is important for managers to find lower cost production methods and compete against firms with lower costs. It examines concepts like fixed, variable, average, and marginal costs.
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1. There are differences between accounting costs and economic costs, as well as accounting profit and economic profit. Accounting only considers explicit costs, while economics considers both explicit and implicit opportunity costs.
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This document discusses key economic concepts related to production, costs, and profit maximization. It defines factors of production and their relationship to output. It also defines fixed costs, variable costs, marginal cost, total revenue, and marginal revenue. Finally, it discusses the concepts of break even point and profit-maximizing quantity, where marginal cost equals marginal revenue.
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Fixed factors are inputs that cannot be adjusted in the short run, like capital or land, while variable factors like labor and materials can be adjusted. In the short run with at least one fixed factor, firms experience diminishing returns from adding more of a variable factor. In the long run, all factors can be adjusted, but firms are constrained by technology. Economies of scale can result in lower long-run costs as output increases due to factors like specialization and bulk purchasing. Firms aim to earn profits by setting price and output levels where total revenue exceeds total costs.
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There are two types of economic costs: explicit costs which are actual expenditures and implicit costs which are the value of factors owned by the firm. Short-run costs include fixed costs which do not vary with output and variable costs which do vary with output. Total cost is the sum of fixed and variable costs. Marginal cost is the change in total cost from producing one additional unit of output. Average costs include average fixed cost, average variable cost, and average total cost.
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This document discusses the costs of production for a firm. It defines explicit costs as actual money expenditures and implicit costs as opportunity costs. Fixed costs do not change with output, while variable costs change as output increases. Total costs are the sum of total fixed and total variable costs. The shapes of the average and marginal cost curves are explained, with average costs initially decreasing and then increasing, and marginal costs first decreasing and then increasing. In the long run, as firms expand production, they experience decreasing costs, constant costs, and eventually increasing costs due to returns to scale. The long run average cost curve sits below short run average cost curves and indicates the efficient level of production.
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The document discusses various concepts related to production and costs, including:
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The document discusses the costs of production for a firm. It defines fixed costs as costs that do not vary with output, variable costs as costs that vary with output, and total costs as the sum of fixed and variable costs. Marginal cost is defined as the change in total cost from producing one additional unit of output. In the short run, costs are classified as either fixed or variable, but in the long run most costs can become variable. Cost curves like average total cost, average variable cost, and marginal cost are discussed and how they relate to costs and production levels.
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Short run production theory
Short-run production theory examines how output is affected by adding a variable factor of production, like labor, to fixed factors. Initially, marginal output increases due to specialization and division of labor. Eventually, marginal output decreases due to diminishing marginal returns, as the variable factor is added beyond the point where it yields high returns relative to the fixed factors.
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This document discusses various cost concepts that are relevant for business operations and decision making. It groups the cost concepts into two categories: 1) accounting cost concepts used for accounting purposes and 2) analytical cost concepts used for economic analysis of business activities. Some key concepts discussed include opportunity cost vs actual cost, fixed vs variable cost, total/average/marginal cost, short-run vs long-run cost, historical vs replacement cost, and private vs social cost.
Cost Theory and Estimation
The document discusses key concepts in cost theory and estimation including short-run and long-run cost curves, cost-volume-profit analysis, new economies of scale, and empirical estimation of cost functions. It examines cost concepts such as total, average, and marginal costs. It also explores returns to scale, learning curves, supply chain management, and other factors that influence a firm's costs.
Production And Cost In The Short Run
The document discusses different types of costs firms face in both the short run and long run. It defines explicit costs as actual cash payments and implicit costs as opportunity costs. In the short run, some resources are fixed while others are variable. As more of the variable input is added, marginal product initially increases but eventually declines due to diminishing returns. In the long run, all inputs are variable and firms can choose different plant sizes, leading to economies or diseconomies of scale.
Long run production and cost theory
1. As firms increase their scale of production in the long-run by investing in fixed factors like larger factories, they can experience increasing, constant, or decreasing returns to scale.
2. Increasing returns lead to lower average costs (economies of scale) while decreasing returns lead to higher average costs (diseconomies of scale).
3. The long-run average cost curve is often U-shaped, falling initially due to technical economies of scale then rising due to managerial diseconomies of scale at very high output levels.
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The document discusses concepts of costs including:
- Short-run costs like total, fixed, variable and average costs and how they change with different levels of output. Marginal cost is also examined.
- Long-run costs and how average costs change with scale of production due to economies and diseconomies of scale. The minimum efficient scale is discussed.
- Empirical studies on cost behavior in both the short-run and long-run are summarized for different industries.
Short run cost theory
Short-run cost theory can be summarized in 3 sentences:
Fixed costs are incurred regardless of output while variable costs change with output. Total costs are the sum of fixed and variable costs. Average total costs initially fall as average fixed costs decline and marginal costs are low, but eventually rise as marginal costs increase due to diminishing returns.
Cost concept and analysis
This document discusses various cost concepts that are relevant for business operations and decision making. It groups the concepts into accounting cost concepts and analytical cost concepts. Some key accounting cost concepts discussed include opportunity cost vs actual cost, business cost vs full cost, explicit vs implicit cost, and out-of-pocket vs book cost. Analytical cost concepts discussed include fixed vs variable cost, total/average/marginal cost, short-run vs long-run cost, incremental vs sunk cost, historical vs replacement cost, and private vs social cost.
Theory of estimation
The document discusses key concepts in estimation theory including point estimation, interval estimation, and sample size determination. Point estimation involves calculating a single value to estimate an unknown population parameter. Interval estimation provides a range of values that the population parameter is likely to fall within. Sample size is important for balancing statistical power and cost; larger samples improve precision but also increase expenses. The document outlines methods for constructing confidence intervals for means, proportions, and differences between parameters.
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3. The production process involves decisions about how much output to supply, which production technology to use, and how much of each input to demand.
Cost 3
This document discusses theories of costs in the short run and long run for firms. It defines fixed costs as expenses that do not change with output, and variable costs as expenses that change proportionally with output. In the short run, total costs are the sum of fixed and variable costs. In the long run, when all costs are variable, the long run average cost curve is derived from the minimum points of multiple short run average cost curves and can exhibit economies or diseconomies of scale.
Cost function.ppt
This document discusses various cost concepts in economics. It defines private and social costs, and explains how private costs can be measured using economic and accounting costs. Economic cost includes explicit costs like wages as well as implicit opportunity costs. The document then discusses different types of costs in the short run including total, variable, fixed, average, and marginal costs. It provides examples and graphs to illustrate cost curves and their relationships. Specifically, it explains that AVC, ATC and MC curves are U-shaped due to the law of variable proportions. The document also discusses costs in the long run and how the long run average cost curve is determined by the envelope of short run average cost curves. Finally, it discusses the learning curve concept and how
Business Costs
Students should be able to:
Illustrate and perform simple calculations using total cost; total fixed cost; total variable cost; average total cost; average fixed cost; average variable cost and marginal cost.
Draw and interpret cost curves; distinguish between short run and long run costs; and explain the shape of the average cost curve in terms of diminishing marginal returns and economies of scale.
Inputs output costs
The document provides an overview of key concepts related to marginal analysis, inputs, outputs, and costs. It discusses marginal and average quantities, production functions, fixed and variable inputs, diminishing returns, fixed and variable costs, total cost, marginal and average cost, short-term and long-term costs, and returns to scale. Key terms like marginal cost, marginal benefit, total cost curves, average cost curves, and their relationships are defined.
Ch07
1) In the short run, firms have both fixed and variable costs. Fixed costs do not depend on output while variable costs do. Marginal cost is the change in total cost from producing one more unit of output.
2) As a firm increases output in the short run, marginal costs will initially decrease but eventually rise as it approaches its fixed capacity. Average costs also fall at first but then rise as marginal costs increase.
3) A profit-maximizing firm will produce the quantity where marginal revenue equals marginal cost, which is also where average total cost is minimized in perfect competition. The marginal cost curve represents the firm's short-run supply curve.
Short-Run Costs and Output Decisions
- In the short run, firms have fixed costs that do not depend on output level. They also have variable costs that vary with output. Total costs are the sum of fixed and variable costs.
- Marginal cost is the change in total cost from producing one additional unit. It reflects changes in variable costs. Marginal cost typically rises as output increases in the short run due to diminishing returns.
- A profit-maximizing firm will produce the quantity where marginal revenue equals marginal cost. In perfect competition, this occurs where price equals marginal cost.
Ch07
- In the short run, firms have fixed costs that do not depend on output level. They also have variable costs that vary with output. Total costs are the sum of fixed and variable costs.
- Marginal cost is the change in total cost from producing one additional unit. It reflects changes in variable costs. Marginal cost typically rises as output increases in the short run due to diminishing returns.
- A profit-maximizing firm will produce the quantity where marginal revenue equals marginal cost. In perfect competition, this occurs where price equals marginal cost.
Pyndick chapter 7-production cost
This document discusses the different types of costs that firms face, including:
- Fixed costs that do not vary with output levels
- Variable costs that vary with output
- Short-run costs determined by production technology and returns to scale
- Long-run costs including the user cost of capital which is depreciation plus the interest rate times the value of capital
It provides examples of cost curves and how costs change with varying levels of output in the short-run and considerations for minimizing costs through optimal input choices in the long-run.
Ch11
The document discusses short-run and long-run decision making for firms. In the short-run, firms' capital is fixed but other inputs can vary, while in the long-run all inputs are variable. Short-run decisions have cost curves that are U-shaped, while the long-run average cost curve is composed of the lowest short-run cost for each output level. Economies and diseconomies of scale determine the shape of the long-run average cost curve.
Week 4 slides 1 [core]
This document discusses key concepts related to a firm's supply decision including production functions, costs, and profit maximization. It explains that in the short-run a firm has fixed inputs and variable inputs. As the firm increases the variable input, it initially experiences increasing returns to scale but eventually diminishing returns as shown by a downward sloping marginal product curve. The document also discusses short-run costs including fixed costs, variable costs, average costs and marginal costs and how their respective curves are shaped.
Cost theory
The document discusses cost theory concepts including opportunity costs, explicit and implicit costs, short-run and long-run costs, fixed and variable costs, total cost, average cost, and marginal cost. It explains how average, marginal, and total costs are related and how their curves are shaped. Specifically, it summarizes that marginal cost and short-run average cost curves slope upward due to diminishing returns, while the long-run average cost curve is U-shaped as economies of scale initially lower costs but diseconomies later raise them. The envelope relationship shows that short-run average costs are always above the minimum long-run average cost.
Cost 2
The document discusses cost theory and the different types of costs firms face. It explains that in the short-run, total cost is the sum of fixed and variable costs. Average costs like average fixed cost, average variable cost, and average total cost are defined. In the long-run, all costs are variable. Economies and diseconomies of scale impact the long-run average cost curve shape. The envelope relationship shows that short-run average costs are always above the long-run average cost curve.
Chapter v
The document discusses the theory of producer behavior and costs. It defines key concepts like production functions, returns to scale, and costs including fixed, variable, average, marginal, and total costs. It explains the relationships between these different cost concepts and how average and marginal costs change with output quantity. Cost curves like average total cost are also examined and shown to typically be U-shaped. Factors that influence costs like diminishing marginal returns are explained. Profit maximization when marginal revenue equals marginal cost is also covered.
Production Cost 7.pdf
The document discusses key concepts related to a firm's production costs, including:
1) It defines different types of costs such as fixed costs, variable costs, total costs, average costs and marginal costs. Fixed costs do not vary with output, while variable costs do.
2) It explains short-run production relationships, diminishing marginal returns, and the law of diminishing returns.
3) It provides an example table and figures to illustrate how total, average, and marginal costs change as production quantity changes in the short-run. Marginal cost is the change in total cost from a one-unit change in output.
4) The marginal-average rule states that average costs will fall
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Chapter8[1]
- 1. Chapter 8 Production & Cost in the Short Run
- 7. Total, Average, & Marginal Products of Labor, K = 2 (Table 8.2) -- 55 51.6 52 56 56.7 47.7 43.4 39.3 35.3 31.4 -- 50 38 52 60 58 28 18 10 4 -4 Number of workers (L) Total product (Q) Average product (AP=Q/L) Marginal product (MP= Q/ L) 0 0 1 52 2 112 3 170 4 220 5 258 6 286 7 304 8 314 9 318 10 314
- 8. Total, Average & Marginal Products, K = 2 (Figure 8.1)
- 9. Total, Average & Marginal Product Curves Panel A Panel B Total product Average product Marginal product Q 1 L 1 L 1 L 2 Q 2 L 2 L 0 Q 0 L 0
- 11. Short-Run Total Cost Schedules (Table 8.4) $ 0 14,000 22,000 4,000 6,000 9,000 34,000 $ 6,000 20,000 28,000 10,000 12,000 15,000 40,000 Output (Q) Total fixed cost (TFC) Total variable cost (TVC) Total Cost (TC=TFC+TVC) 0 $6,000 100 6,000 200 6,000 300 6,000 400 6,000 500 6,000 600 6,000
- 12. Total Cost Curves (Figure 8.3)
- 13. Average Costs • • •
- 15. Average & Marginal Cost Schedules (Table 8.5) -- 15 12 $60 30 20 10 -- 35 44 $40 30 30 56.7 -- 50 56 $100 60 50 66.7 -- 50 80 $40 20 30 120 Output (Q) Average fixed cost (AFC=TFC/Q) Average variable cost (AVC=TVC/Q) Average total cost (ATC=TC/Q= AFC+AVC) Short-run marginal cost (SMC= TC/ Q) 0 100 200 300 400 500 600
- 16. Average & Marginal Cost Curves (Figure 8.3)
- 17. Short Run Average & Marginal Cost Curves (Figure 8.5)
- 21. Short-Run Production & Cost Relations (Figure 8.6)