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Production and Cost in the Short Run ,[object Object],© 2006 Thomson/South-Western
Explicit and Implicit Costs ,[object Object],[object Object],[object Object],[object Object],[object Object]
Alternative Measures of Profit ,[object Object],[object Object],[object Object],[object Object]
Exhibit 1: Accounts of Wheeler Dealer 2004
Normal Profit ,[object Object],[object Object],[object Object],[object Object]
Fixed and Variable Resources ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Exhibit 2:  Short-Run Relationship
Law of Diminishing Marginal Returns ,[object Object],[object Object]
Exhibit 3:  Total and Marginal Product of Labor ,[object Object],[object Object],[object Object]
Costs in the Short Run ,[object Object],[object Object],[object Object]
Tons Moved  Fixed    Variable   Marginal per Day   cost  Workers  Cost  Total Cost  Cost (q)   (FC)  per Day  (VC)  TC=FC+VC  MC=  TC/   q (1)   (2)  (3)  (4)  (5)  (6)   $0    $200    0   $0  $200    - 2   200   1 100 300  50.00 5   200   2 200 400  33.33 9   200   3 300 500  25.00 12   200   4 400 600  33.33 14   200   5 500 700  50.00 15   200   6 600 800 100.00 Exhibit 4:  Short-Run Cost Data ,[object Object],[object Object],[object Object]
Marginal Cost and Marginal Productivity ,[object Object],[object Object],[object Object]
Exhibit 5:  Total and Marginal Cost Curves
Exhibit 5:  Total and Marginal Cost Curves ( Tons per day $1,000 500 200 Total cost  Variable cost  Fixed cost  Fixed cost  3 0 6 9 12 15 Total dollars Tons per day $100  50  25 Marginal  cost 3 0 6 9 12 Cost per ton 15 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Average Cost in the Short Run ,[object Object],[object Object],[object Object]
Exhibit 6:  Short Run Cost Data ,[object Object],[object Object],[object Object],Tons Moved  Variable    Marginal   Average  Average per Day  Cost   Total Cost   Cost   Variable Cost  Total Cost (q)   (VC)  TC=FC+VC  MC=∆TC/∆q  AVC=VC/q  ATC=TC /q (1)   (2)   (3)   (4)   (5) =(2) / (1)  (6)=(3) / (1)   0    $0  $200    $0.00   -   2   100   300   50.00   $50.00  $150.00 5   200   400   33.33   40.00   80.00 9   300   500   25.00   33.33   55.55 12   400   600   33.33   33.33   50.00 14   500   700   50.00   35.71   50.00 15   600   800   100.00   40.00   53.33
Marginal and Average Cost ,[object Object],[object Object],[object Object],[object Object]
Exhibit 7: Average and Marginal Cost Curves $150   125   100   75   50   25   0  5  10  15  Tons per day Marginal cost  Average total cost Average variable cost Notice also that the rising marginal cost curve intersects both the average variable and total cost curves at their minimums. The distance between the average variable and total cost gets smaller as output increases because average fixed costs decline as output increases  Cost per ton
Costs in the Long Run ,[object Object],[object Object],[object Object],[object Object]
Long-Run Average Cost Curve ,[object Object],[object Object],[object Object],[object Object]
Long-Run Average Cost Curve ,[object Object],[object Object],[object Object]
Exhibit 8: Long-Run Planning Curve
Exhibit 9: Firm’s Long-Run Planning Curve
Economies of Scale ,[object Object],[object Object]
Economies of Scale ,[object Object],[object Object]
Diseconomies of Scale ,[object Object],[object Object],[object Object]
Exhibit 10: A Firm’s Long-Run Average Cost Curve

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Production And Cost In The Short Run

  • 1.
  • 2.
  • 3.
  • 4. Exhibit 1: Accounts of Wheeler Dealer 2004
  • 5.
  • 6.
  • 7. Exhibit 2: Short-Run Relationship
  • 8.
  • 9.
  • 10.
  • 11.
  • 12.
  • 13. Exhibit 5: Total and Marginal Cost Curves
  • 14.
  • 15.
  • 16.
  • 17.
  • 18. Exhibit 7: Average and Marginal Cost Curves $150 125 100 75 50 25 0 5 10 15 Tons per day Marginal cost Average total cost Average variable cost Notice also that the rising marginal cost curve intersects both the average variable and total cost curves at their minimums. The distance between the average variable and total cost gets smaller as output increases because average fixed costs decline as output increases Cost per ton
  • 19.
  • 20.
  • 21.
  • 22. Exhibit 8: Long-Run Planning Curve
  • 23. Exhibit 9: Firm’s Long-Run Planning Curve
  • 24.
  • 25.
  • 26.
  • 27. Exhibit 10: A Firm’s Long-Run Average Cost Curve