Output and costs (2)
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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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Dheeraj Rawal presented on cost-output relationships and methods for estimating cost functions. There are two main types of cost estimation: short-run and long-run. Short-run estimation looks at costs when some inputs are fixed, while long-run allows all inputs to vary. Common short-run cost curves include total, average, and marginal cost curves. Long-run estimation derives a minimum cost curve from multiple short-run curves. Methods for estimating cost functions include accounting analysis, high-low analysis, scatterplots, and regression analysis. Challenges include accounting for time periods and cost adjustments over time.
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2. In the short run, individual firms are price takers and will produce where marginal cost equals marginal revenue. In the long run, firms will adjust entry and exit from the industry until all firms earn only normal profits.
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2. There are different types of costs including explicit costs like wages, implicit costs which do not appear in accounting records, actual costs involving financial expenditures, and opportunity costs which represent the next best alternative use of resources.
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Profit maximization and perfect competition
1) A firm produces at the quantity where marginal revenue equals marginal cost to maximize profits. This is the point where additional revenue from producing another unit equals the additional costs.
2) A firm's profit is maximized by producing at the output level where marginal revenue equals marginal cost. Producing more would mean marginal costs exceed marginal revenues, reducing profits.
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The document discusses the concept of economies of scale - the cost advantages that businesses obtain due to expansion and increased production. It provides examples of internal and external economies of scale that individual firms and industries can achieve. Internal economies include labor, technical, managerial, marketing, financial, and risk-spreading advantages. External economies arise from factors like skilled local labor pools and supplier networks.
The document also addresses the concept of diseconomies of scale, where larger business size results in increased per-unit costs. Examples given include managerial inefficiency in large organizations, breakdowns in supplier/customer relationships, and traffic congestion. There is an optimum point where economies of scale are maximized and diseconomies begin to
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Accounting profit is a company's total earnings calculated according to accounting principles. It includes explicit costs like expenses, depreciation, interest, and taxes. A business makes an accounting profit if income exceeds expenses. Economic profit considers opportunity costs and is the difference between revenues and total costs including opportunity costs forgone. The key differences are: 1) Economic profit includes opportunity costs while accounting profit does not; 2) Accounting profit can exceed economic profit because it excludes some costs; 3) Several non-cash items are included in accounting profit calculation but not in economic profit.
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The document discusses the concept of cost and various types of costs from the perspective of the theory of cost. It defines cost and explains opportunity cost versus actual cost. It then outlines 10 main types of costs including direct vs indirect costs, fixed vs variable costs, sunk vs incremental costs, and historical vs replacement costs. The document also discusses cost functions and how factors like output, scale, input prices, and technology influence the cost-output relationship in the short-run. Graphs and examples are provided to illustrate short-run total, average and marginal costs.
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Lec 11 Exceptions to the Law of Demand
Exceptions to the Law of Demand
A normal demand curve falls downward from left to right. The basic feature of the demand curve is negative sloping
But sometimes the demand curve may slope upward from left to right. In other words, it may have a positively inclined curve.
These phenomena may due to:
Giffen paradox
Veblen or Demonstration effect.
Ignorance.
Speculative Effect.
Fear of Shortage.
Necessaries
Brand Loyalty
Festival, Marriage etc.
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Non price competition is among the characteristics of Oligopoly market where firms compete to win the market share by aggressive advertisement programs rather than price. The climax of Non-price competition is the formation of Cartels which are illegal in most economies.
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This document defines and describes perfect competition in economic theory. It has the following key points:
1. Perfect competition is characterized by many small firms and buyers, homogeneous products, free entry and exit in the industry, no government intervention, perfect mobility of resources, complete information, and no transportation costs.
2. In the short run, individual firms are price takers and will produce where marginal cost equals marginal revenue. In the long run, firms will adjust entry and exit from the industry until all firms earn only normal profits.
3. The industry equilibrium occurs where quantity supplied equals quantity demanded. In the long run, this results in no incentives for further entry or exit from the industry.
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This document discusses production functions and the differences between short-run and long-run production. In the short-run, at least one input is fixed, leading to diminishing returns. The long-run allows all inputs to vary, and economies of scale can result in decreasing, constant, or increasing returns. Specifically, decreasing returns occur when output grows less than inputs; constant returns when both grow equally; and increasing returns when output grows more than inputs due to factors like specialization and large-scale machinery.
Long Run Average Cost Curve
The document discusses long-run average cost (LAC) curves. It explains that in the long-run, all factors of production are variable and the LAC curve guides entrepreneurs on optimal plant size and output levels. The LAC curve is derived from short-run cost curves and is U-shaped, representing minimum unit costs for different output levels. Economies of scale may exist as costs fall with increasing output up to a point, after which diseconomies of scale can set in as costs begin rising again. The break-even point is where total revenue equals total costs and no economic profit is made.
Costs of Production
Students will learn different types of costs which is included in production.How these cost are calculated and effect the production.
Cost market & competitive analysis
This document contains an analysis of costs, market forces, and competitors for PGMAX (2014-2015). It includes sections on cost concepts, cost functions, short-run and long-run costs, economies of scale, and cost-volume-profit analysis. Market and competitor analyses cover market size, share, trends, Porter's Five Forces model, and assessing strengths and weaknesses of competitors. Break-even analysis calculations are shown for a example company.
Cost of Production (10-1-22)-student notes (2).pdf
Okay, let me break this down step-by-step:
* Explicit costs:
** Labor costs: $12,000
** Rent: $5,000
** Materials: $20,000
* Total explicit costs = $12,000 + $5,000 + $20,000 = $37,000
* Implicit costs:
** Opportunity cost of capital = $4,000
** Mooez's salary as potter = $15,000
** Value of Mooez's entrepreneurial talents = $3,000
* Total implicit costs = $4,000 + $15,000 + $3,000 = $22,000
* Total costs
Production and cost
- A business firm employs factors of production like resources to produce goods and services that are sold to consumers, other firms, or the government.
- Firms arise when individuals can obtain benefits from working as a team, with managers directing employees and monitoring workers to reduce shirking.
- Exchanges take place inside the firm between individuals forming teams and workers choosing monitors, and outside the firm as the firm sells its products.
Chapter 22 the costs of production
The document discusses the concepts of economic costs, short-run production costs, and long-run production costs. It defines economic costs as the opportunity costs of resources used for production. Short-run costs are fixed for a given plant size, while long-run costs allow varying the plant size. The law of diminishing returns affects costs as more of a variable input is added. Economies and diseconomies of scale impact long-run average total costs. Minimum efficient scale is the smallest output level that minimizes average costs.
Production cost
Production costs refer to the total expenses incurred from manufacturing a product or providing a service. They include direct costs like materials and labor as well as overhead costs.
There are three types of production costs: fixed costs which do not vary with output like rent, variable costs which vary with output like raw materials, and total costs which is the sum of fixed and variable costs.
Understanding short-run and long-run average cost curves can provide insight into a firm's costs. The long-run average cost curve shows minimum possible average costs at all output levels if all inputs can be varied. Each point on the curve represents an optimal combination of inputs. Short-run average cost curves represent when capital is fixed, so
Costs Of Production Micro Economics ECO101
This document discusses the costs of production for a firm. It begins by defining a firm and its goal of profit maximization. It explains that a firm faces constraints from technology, information, and markets. It also discusses the five basic decisions a firm must make: what and how much to produce, how to produce, how to organize workers, how to market and price products, and what to produce internally vs externally.
The document then explains the differences between short-run and long-run time frames. In the short-run, capital is fixed while variable inputs can change, while in the long-run all inputs are variable. It introduces the concepts of total, average, and marginal costs. Finally, it discusses how
1b kno how on costs
This document discusses production costs and functions. It covers:
1. Short-run and long-run production, where factors of production are fixed in the short-run. Diminishing returns can occur in the short-run as adding more variable inputs yields lower marginal products.
2. Returns to scale in the long-run, where all factors are variable. Increasing, decreasing, and constant returns to scale depend on the relationship between input and output percentage changes.
3. Cost concepts including fixed, variable, average, marginal, and total costs. Fixed costs do not vary with output while variable costs do. Marginal cost is the change in total cost from one extra unit of output.
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Output and costs (2)
- 1. Output and Costs Rabia Khan Syed Abdul Haseeb Abdul Wahid Khan
- 2. Time frames The two major types are: Short-run Long-run
- 3. 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.
- 4. 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.
- 5. 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.
- 6. Short run technology constraints Total product Marginal product Average product Product schedules and product curves help illustrate these concepts.
- 7. The following table explains how total, average and marginal costs are displayed.
- 8. Total Product Curve This is a total product curve. The total product curve is similar to the PPF. It separates attainable output levels from unattainable output levels in the short run.
- 9. 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 …
- 10. 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
- 11. 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
- 12. Short-run Costs This curve shows ; Marginal Cost Average Total Cost Average Variable Cost Average Fixed Cost
- 13. Short-run costs
- 14. Long-run Cost
- 15. Economies and Diseconomies of scale
- 16. 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.
- 17. 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.
- 18. Comparison
- 19. THANK YOU