曼昆《经济学原理》英文课件princ-ch13-presentation(2010)(1)

nullThe Costs of ProductionThe Costs of ProductionEconomicsP R I N C I P L E S O FN. Gregory Mankiw13A C T I V E L E A R N I N G 1 Brainstorming: CostsYou run Ford Motor Company. List 3 different costs you have. List 3 different business decisions that are affected by your costs.A C T I V E L E A R N I N G 1 Brainstorming: Costs*In this chapter, look for the answers to these questions:In this chapter, look for the answers to these questions:What is a production function? What is marginal product? How are they related? What are the various costs, and how are they related to each other and to output? How are costs different in the short run vs. the long run? What are “economies of scale”? *Total Revenue, Total Cost, ProfitTHE COSTS OF PRODUCTION*Total Revenue, Total Cost, ProfitWe assume that the firm’s goal is to maximize profit.Profit = Total revenue – Total cost0Profit is Different from IncomeTHE COSTS OF PRODUCTION*Profit is Different from IncomeProfit is different from Wage (of owner’s labor) Rent (of capital) Goods that are used to produce future goods Buildings Interest (of money) Payment for use of money The foregone income from these self-employed resources represent costs, not profits.0Costs: Explicit vs. ImplicitTHE COSTS OF PRODUCTION*Costs: Explicit vs. ImplicitExplicit costs require an outlay of money, e.g., paying wages to workers. Implicit costs do not require a cash outlay, e.g., the opportunity cost of the owner’s time. Remember one of the Ten Principles: The cost of something is what you give up to get it. This is true whether the costs are implicit or explicit. Both matter for firms’ decisions.0Explicit vs. Implicit Costs: An ExampleTHE COSTS OF PRODUCTION*Explicit vs. Implicit Costs: An ExampleYou need $100,000 to start your business. The interest rate is 5%. Case 1: borrow $100,000 explicit cost = $5000 interest on loan Case 2: use $40,000 of your savings, borrow the other $60,000 explicit cost = $3000 (5%) interest on the loan implicit cost = $2000 (5%) foregone interest you could have earned on your $40,000.0In both cases, total (exp + imp) costs are $5000.Economic Profit vs. Accounting ProfitTHE COSTS OF PRODUCTION*Economic Profit vs. Accounting ProfitAccounting profit ignores implicit costs, so it’s higher than economic profit. 0Economic profitimplicit costsexplicit costsAccounting profit explicit costsProfit : An ExampleTHE COSTS OF PRODUCTION*Profit : An ExampleAnn was a computer programmer whose annual salary is $60 000. She has a house besides the street ,which could be rent for $10 000 a year. Besides, she had saved $60 000 in a bank, which has a interest rate 5%. She want to establish a business of her own for a long time. A year ago, to realize her dream, she quitted her job, drew her money from the bank, borrowed $40 000 from the bank, and used her house as a office. Now, A year later, her revenue is $120 000. She has to pay the worker and the material supplier $50 000 in all. How much is her profit?0A C T I V E L E A R N I N G 2 Economic profit vs. accounting profitThe equilibrium rent on office space has just increased by $500/month. Compare the effects on accounting profit and economic profit if a. you rent your office space b. you own your office space A C T I V E L E A R N I N G 2 Economic profit vs. accounting profit*A C T I V E L E A R N I N G 2 AnswersThe rent on office space increases $500/month. a. You rent your office space. Explicit costs increase $500/month. Accounting profit & economic profit each fall $500/month. b. You own your office space. Explicit costs do not change, so accounting profit does not change. Implicit costs increase $500/month (opp. cost of using your space instead of renting it), so economic profit falls by $500/month. A C T I V E L E A R N I N G 2 Answers*The Production FunctionTHE COSTS OF PRODUCTION*The Production FunctionA production function shows the relationship between the quantity of inputs used to produce a good and the quantity of output of that good. It can be represented by a table, equation, or graph. Example 1: Farmer Jack grows wheat. He has 5 acres of land. He can hire as many workers as he wants. 0Example 1: Farmer Jack’s Production FunctionTHE COSTS OF PRODUCTION*Example 1: Farmer Jack’s Production Function0Marginal ProductTHE COSTS OF PRODUCTION*Marginal ProductIf Jack hires one more worker, his output rises by the marginal product of labor. The marginal product of any input is the increase in output arising from an additional unit of that input, holding all other inputs constant. Notation: ∆ (delta) = “change in…” Examples: ∆Q = change in output, ∆L = change in labor Marginal product of labor (MPL) = 0EXAMPLE 1: Total & Marginal ProductTHE COSTS OF PRODUCTION*EXAMPLE 1: Total & Marginal Product2004006008001000MPL0EXAMPLE 1: MPL = Slope of Prod FunctionTHE COSTS OF PRODUCTION*MPL equals the slope of the production function. Notice that MPL diminishes as L increases. This explains why the production function gets flatter as L increases. EXAMPLE 1: MPL = Slope of Prod Function3000520028004400240036001800280010001100000MPLQ (bushels of wheat)L (no. of workers)0Why MPL Is ImportantTHE COSTS OF PRODUCTION*Why MPL Is ImportantRecall one of the Ten Principles: Rational people think at the margin. When Farmer Jack hires an extra worker, his costs rise by the wage he pays the worker his output rises by MPL Comparing them helps Jack decide whether he would benefit from hiring the worker. Why MPL DiminishesTHE COSTS OF PRODUCTION*Why MPL DiminishesFarmer Jack’s output rises by a smaller and smaller amount for each additional worker. Why? As Jack adds workers, the average worker has less land to work with and will be less productive. In general, MPL diminishes as L rises whether the fixed input is land or capital (equipment, machines, etc.). Diminishing marginal product: the marginal product of an input declines as the quantity of the input increases (other things equal)EXAMPLE 1: Farmer Jack’s CostsTHE COSTS OF PRODUCTION*EXAMPLE 1: Farmer Jack’s CostsFarmer Jack must pay $1000 per month for the land, regardless of how much wheat he grows. The market wage for a farm worker is $2000 per month. So Farmer Jack’s costs are related to how much wheat he produces….EXAMPLE 1: Farmer Jack’s CostsTHE COSTS OF PRODUCTION*EXAMPLE 1: Farmer Jack’s CostsTotal Cost300052800424003180021000100Cost of laborCost of landQ (bushels of wheat)L (no. of workers)0EXAMPLE 1: Farmer Jack’s Total Cost CurveTHE COSTS OF PRODUCTION*EXAMPLE 1: Farmer Jack’s Total Cost CurveMarginal CostTHE COSTS OF PRODUCTION*Marginal CostMarginal Cost (MC) is the increase in Total Cost from producing one more unit: EXAMPLE 1: Total and Marginal CostTHE COSTS OF PRODUCTION*EXAMPLE 1: Total and Marginal Cost$10.00$5.00$3.33$2.50$2.00Marginal Cost (MC)EXAMPLE 1: The Marginal Cost CurveTHE COSTS OF PRODUCTION*MC usually rises as Q rises, as in this example.EXAMPLE 1: The Marginal Cost Curve$11,000$9,000$7,000$5,000$3,000$1,000TCMC300028002400180010000Q (bushels of wheat)Why MC Is ImportantTHE COSTS OF PRODUCTION*Why MC Is ImportantFarmer Jack is rational and wants to maximize his profit. To increase profit, should he produce more or less wheat? To find the answer, Farmer Jack needs to “think at the margin.” If the cost of additional wheat (MC) is less than the revenue he would get from selling it, then Jack’s profits rise if he produces more. Fixed and Variable CostsTHE COSTS OF PRODUCTION*Fixed and Variable CostsFixed costs (FC) do not vary with the quantity of output produced. For Farmer Jack, FC = $1000 for his land Other examples: cost of equipment, loan payments, rent Variable costs (VC) vary with the quantity produced. For Farmer Jack, VC = wages he pays workers Other example: cost of materials Total cost (TC) = FC + VC0EXAMPLE 2: CostsOur second example is more general, applies to any type of firm producing any good with any types of inputs. THE COSTS OF PRODUCTION*EXAMPLE 2: Costs76543210TCVCFCQ0EXAMPLE 2: Marginal CostTHE COSTS OF PRODUCTION*Recall, Marginal Cost (MC) is the change in total cost from producing one more unit:Usually, MC rises as Q rises, due to diminishing marginal product. Sometimes (as here), MC falls before rising. (In other examples, MC may be constant.) EXAMPLE 2: Marginal Cost6207480638053104260322021701$1000MCTCQEXAMPLE 2: Average Fixed CostTHE COSTS OF PRODUCTION*EXAMPLE 2: Average Fixed Cost1007100610051004100310021001$1000AFCFCQAverage fixed cost (AFC) is fixed cost divided by the quantity of output: AFC = FC/QNotice that AFC falls as Q rises: The firm is spreading its fixed costs over a larger and larger number of units. 0EXAMPLE 2: Average Variable CostTHE COSTS OF PRODUCTION*EXAMPLE 2: Average Variable Cost520738062805210416031202701$00AVCVCQAverage variable cost (AVC) is variable cost divided by the quantity of output: AVC = VC/QAs Q rises, AVC may fall initially. In most cases, AVC will eventually rise as output rises.0EXAMPLE 2: Average Total CostTHE COSTS OF PRODUCTION*EXAMPLE 2: Average Total CostATC6207480638053104260322021701$1000TCQ0Average total cost (ATC) equals total cost divided by the quantity of output: ATC = TC/QAlso, ATC = AFC + AVCEXAMPLE 2: Average Total CostTHE COSTS OF PRODUCTION*Usually, as in this example, the ATC curve is U-shaped.EXAMPLE 2: Average Total Cost88.57807677.5086.67110$170n/aATC6207480638053104260322021701$1000TCQ0A C T I V E L E A R N I N G 3 Calculating costsA C T I V E L E A R N I N G 3 Calculating costs*Fill in the blank spaces of this table. 2101501003010VC43.33358.33260630537.5012.50150436.672016.673802$60.00$101n/an/an/a$500MCATCAVCAFCTCQ6030$10A C T I V E L E A R N I N G 3 AnswersA C T I V E L E A R N I N G 3 Answers*Use AFC = FC/QUse AVC = VC/QUse relationship between MC and TCUse ATC = TC/QFirst, deduce FC = $50 and use FC + VC = TC. 210150100603010$0VC43.33358.33260640.003010.00200537.502512.50150436.672016.67110340.001525.00802$60.00$10$50.00601n/an/an/a$500MCATCAVCAFCTCQ6050403020$10EXAMPLE 2: The Various Cost Curves TogetherTHE COSTS OF PRODUCTION*EXAMPLE 2: The Various Cost Curves Together0EXAMPLE 2: Why MC Is Eventually RisingTHE COSTS OF PRODUCTION*EXAMPLE 2: Why MC Is Eventually Rising0Some inputs are fixed. When Q is small, the fixed inputs are idle, and it needs few variable inputs to produce the goods. As Q rises, fixed inputs are exhausted, and more variable inputs are needed.EXAMPLE 2: Why ATC Is Usually U-ShapedTHE COSTS OF PRODUCTION*EXAMPLE 2: Why ATC Is Usually U-Shaped0As Q rises: Initially, falling AFC pulls ATC down. Eventually, rising AVC pulls ATC up. Efficient scale: The quantity that minimizes ATC. EXAMPLE 2: ATC and MCTHE COSTS OF PRODUCTION*EXAMPLE 2: ATC and MC0When MC < ATC, ATC is falling. When MC > ATC, ATC is rising. The MC curve crosses the ATC curve at the ATC curve’s minimum. Typical Cost CurvesTHE COSTS OF PRODUCTION*Typical Cost CurvesMarginal cost eventually rises with the quantity of output. The average-total-cost curve is U-shaped. The marginal-cost curve crosses the average-total-cost curve at the minimum of average total cost.ATCMCCosts in the Short Run & Long RunTHE COSTS OF PRODUCTION*Costs in the Short Run & Long RunShort run: Some inputs are fixed (e.g., factories, land). The costs of these inputs are FC. Long run: All inputs are variable (e.g., firms can build more factories, or sell existing ones). In the long run, ATC at any Q is cost per unit using the most efficient mix of inputs for that Q (e.g., the factory size with the lowest ATC).EXAMPLE 3: LRATC with 3 factory SizesTHE COSTS OF PRODUCTION*EXAMPLE 3: LRATC with 3 factory SizesFirm can choose from 3 factory sizes: S, M, L. Each size has its own SRATC curve. The firm can change to a different factory size in the long run, but not in the short run. EXAMPLE 3: LRATC with 3 factory SizesTHE COSTS OF PRODUCTION*EXAMPLE 3: LRATC with 3 factory SizesLRATCTo produce less than QA, firm will choose size S in the long run. To produce between QA and QB, firm will choose size M in the long run. To produce more than QB, firm will choose size L in the long run.A Typical LRATC CurveTHE COSTS OF PRODUCTION*A Typical LRATC CurveIn the real world, factories come in many sizes, each with its own SRATC curve. So a typical LRATC curve looks like this:How ATC Changes as the Scale of Production ChangesTHE COSTS OF PRODUCTION*How ATC Changes as the Scale of Production ChangesEconomies of scale: ATC falls as Q increases. Constant returns to scale: ATC stays the same as Q increases. Diseconomies of scale: ATC rises as Q increases. How ATC Changes as the Scale of Production ChangesTHE COSTS OF PRODUCTION*How ATC Changes as the Scale of Production ChangesEconomies of scale occur when increasing production allows greater specialization: workers more efficient when focusing on a narrow task. More common when Q is low. Diseconomies of scale are due to coordination problems in large organizations. E.g., management becomes stretched, can’t control costs. More common when Q is high. CONCLUSIONTHE COSTS OF PRODUCTION*CONCLUSIONCosts are critically important to many business decisions, including production, pricing, and hiring. This chapter has introduced the various cost concepts. The following chapters will show how firms use these concepts to maximize profits in various market structures. CHAPTER SUMMARYCHAPTER SUMMARYImplicit costs do not involve a cash outlay, yet are just as important as explicit costs to firms’ decisions. Accounting profit is revenue minus explicit costs. Economic profit is revenue minus total (explicit + implicit) costs. The production function shows the relationship between output and inputs. *CHAPTER SUMMARYCHAPTER SUMMARYThe marginal product of labor is the increase in output from a one-unit increase in labor, holding other inputs constant. The marginal products of other inputs are defined similarly. Marginal product usually diminishes as the input increases. Thus, as output rises, the production function becomes flatter, and the total cost curve becomes steeper. Variable costs vary with output; fixed costs do not.*CHAPTER SUMMARYCHAPTER SUMMARYMarginal cost is the increase in total cost from an extra unit of production. The MC curve is usually upward-sloping. Average variable cost is variable cost divided by output. Average fixed cost is fixed cost divided by output. AFC always falls as output increases. Average total cost (sometimes called “cost per unit”) is total cost divided by the quantity of output. The ATC curve is usually U-shaped. *CHAPTER SUMMARYCHAPTER SUMMARYThe MC curve intersects the ATC curve at minimum average total cost. When MC < ATC, ATC falls as Q rises. When MC > ATC, ATC rises as Q rises. In the long run, all costs are variable. Economies of scale: ATC falls as Q rises. Diseconomies of scale: ATC rises as Q rises. Constant returns to scale: ATC remains constant as Q rises. *