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22 - 1 Copyright McGraw-Hill/Irwin, 2005 Economic Costs Short-Run and Long-Run Short-Run Production...

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22 - 1 Copyright McGraw-Hill/Irwin, 2005 Economic Costs Short-Run and Long -Run Short-Run Producti on Relationships Short-Run Producti on Costs Short-Run Costs Gr aphically Productivity and C ost Curves Long-Run Productio n Costs Economies and Diseconomies of Scale Minimum Efficient Scale and Industry Structure Key Terms Previo us Slide Next Slid e End Show The Costs of Production 22 C H A P T E R
Transcript
Page 1: 22 - 1 Copyright McGraw-Hill/Irwin, 2005 Economic Costs Short-Run and Long-Run Short-Run Production Relationships Short-Run Production Costs Short-Run.

22 - 1Copyright McGraw-Hill/Irwin, 2005

Economic Costs

Short-Run and Long-Run

Short-Run Production Relationships

Short-Run Production Costs

Short-Run Costs Graphically

Productivity and Cost Curves

Long-Run Production Costs

Economies and Diseconomies of Scale

Minimum Efficient Scale and Industry Structure

Key Terms

PreviousSlide

NextSlide

EndShow

The Costs of Production

22C H A P T E R

Page 2: 22 - 1 Copyright McGraw-Hill/Irwin, 2005 Economic Costs Short-Run and Long-Run Short-Run Production Relationships Short-Run Production Costs Short-Run.

22 - 2Copyright McGraw-Hill/Irwin, 2005

Economic Costs

Short-Run and Long-Run

Short-Run Production Relationships

Short-Run Production Costs

Short-Run Costs Graphically

Productivity and Cost Curves

Long-Run Production Costs

Economies and Diseconomies of Scale

Minimum Efficient Scale and Industry Structure

Key Terms

PreviousSlide

NextSlide

EndShow

Average Product (AP)

Total Product (TP)Marginal Product (MP)

SHORT-RUN PRODUCTIONRELATIONSHIPS

Marginal Product =Change in Total Product

Change in Labor Input

Average Product =Total Product

Units of Labor

Page 3: 22 - 1 Copyright McGraw-Hill/Irwin, 2005 Economic Costs Short-Run and Long-Run Short-Run Production Relationships Short-Run Production Costs Short-Run.

22 - 3Copyright McGraw-Hill/Irwin, 2005

Economic Costs

Short-Run and Long-Run

Short-Run Production Relationships

Short-Run Production Costs

Short-Run Costs Graphically

Productivity and Cost Curves

Long-Run Production Costs

Economies and Diseconomies of Scale

Minimum Efficient Scale and Industry Structure

Key Terms

PreviousSlide

NextSlide

EndShow

PRODUCTIVITY AND COST CURVES

Co

sts

(d

olla

rs)

Ave

rag

e p

rod

uct

an

dm

arg

inal

pro

du

ctQuantity of labor

Quantity of output

MPAP

MCAVC

Page 4: 22 - 1 Copyright McGraw-Hill/Irwin, 2005 Economic Costs Short-Run and Long-Run Short-Run Production Relationships Short-Run Production Costs Short-Run.

22 - 4Copyright McGraw-Hill/Irwin, 2005

Economic Costs

Short-Run and Long-Run

Short-Run Production Relationships

Short-Run Production Costs

Short-Run Costs Graphically

Productivity and Cost Curves

Long-Run Production Costs

Economies and Diseconomies of Scale

Minimum Efficient Scale and Industry Structure

Key Terms

PreviousSlide

NextSlide

EndShow

Law of Diminishing Returns

SHORT-RUN PRODUCTIONRELATIONSHIPS

Tota

l Pro

du

ct, T

P

Quantity of Labor

Ave

rag

e P

rod

uct

, AP,

an

dM

arg

inal

Pro

du

ct, M

P

Quantity of Labor

Total Product

MarginalProduct

AverageProduct

IncreasingMarginalReturns

http://highered.mcgraw-hill.com/sites/0072819359/student_view0/chapter22/origin_of_the_idea.html
Page 5: 22 - 1 Copyright McGraw-Hill/Irwin, 2005 Economic Costs Short-Run and Long-Run Short-Run Production Relationships Short-Run Production Costs Short-Run.

22 - 5Copyright McGraw-Hill/Irwin, 2005

Economic Costs

Short-Run and Long-Run

Short-Run Production Relationships

Short-Run Production Costs

Short-Run Costs Graphically

Productivity and Cost Curves

Long-Run Production Costs

Economies and Diseconomies of Scale

Minimum Efficient Scale and Industry Structure

Key Terms

PreviousSlide

NextSlide

EndShow

Law of Diminishing Returns

SHORT-RUN PRODUCTIONRELATIONSHIPS

Tota

l Pro

du

ct, T

P

Quantity of Labor

Ave

rag

e P

rod

uct

, AP,

an

dM

arg

inal

Pro

du

ct, M

P

Quantity of Labor

Total Product

MarginalProduct

AverageProduct

DiminishingMarginalReturns

http://highered.mcgraw-hill.com/sites/0072819359/student_view0/chapter22/origin_of_the_idea.html
Page 6: 22 - 1 Copyright McGraw-Hill/Irwin, 2005 Economic Costs Short-Run and Long-Run Short-Run Production Relationships Short-Run Production Costs Short-Run.

22 - 6Copyright McGraw-Hill/Irwin, 2005

Economic Costs

Short-Run and Long-Run

Short-Run Production Relationships

Short-Run Production Costs

Short-Run Costs Graphically

Productivity and Cost Curves

Long-Run Production Costs

Economies and Diseconomies of Scale

Minimum Efficient Scale and Industry Structure

Key Terms

PreviousSlide

NextSlide

EndShow

Law of Diminishing Returns

SHORT-RUN PRODUCTIONRELATIONSHIPS

Tota

l Pro

du

ct, T

P

Quantity of Labor

Ave

rag

e P

rod

uct

, AP,

an

dM

arg

inal

Pro

du

ct, M

P

Quantity of Labor

Total Product

MarginalProduct

AverageProduct

NegativeMarginalReturns

http://highered.mcgraw-hill.com/sites/0072819359/student_view0/chapter22/origin_of_the_idea.html
http://highered.mcgraw-hill.com/sites/0072819359/student_view0/chapter22/origin_of_the_idea.html
Page 7: 22 - 1 Copyright McGraw-Hill/Irwin, 2005 Economic Costs Short-Run and Long-Run Short-Run Production Relationships Short-Run Production Costs Short-Run.

22 - 7Copyright McGraw-Hill/Irwin, 2005

Economic Costs

Short-Run and Long-Run

Short-Run Production Relationships

Short-Run Production Costs

Short-Run Costs Graphically

Productivity and Cost Curves

Long-Run Production Costs

Economies and Diseconomies of Scale

Minimum Efficient Scale and Industry Structure

Key Terms

PreviousSlide

NextSlide

EndShow

Fixed CostsTotal Fixed Costs

Average Fixed Costs =Total Fixed Costs

Quantity

Variable CostsTotal Variable Costs

Average Variable Costs =Total Variable Costs

Quantity

SHORT-RUN PRODUCTION COSTS

Page 8: 22 - 1 Copyright McGraw-Hill/Irwin, 2005 Economic Costs Short-Run and Long-Run Short-Run Production Relationships Short-Run Production Costs Short-Run.

22 - 8Copyright McGraw-Hill/Irwin, 2005

Economic Costs

Short-Run and Long-Run

Short-Run Production Relationships

Short-Run Production Costs

Short-Run Costs Graphically

Productivity and Cost Curves

Long-Run Production Costs

Economies and Diseconomies of Scale

Minimum Efficient Scale and Industry Structure

Key Terms

PreviousSlide

NextSlide

EndShow Marginal Cost = MC

Total Fixed Costs = TFCTotal Variable Costs = TVC

Average Variable Costs = AVC

Total Costs = TC

Average Total Costs = ATC

Average Fixed Costs = AFC

Summary of DefinitionsSHORT-RUN PRODUCTION COSTS

Page 9: 22 - 1 Copyright McGraw-Hill/Irwin, 2005 Economic Costs Short-Run and Long-Run Short-Run Production Relationships Short-Run Production Costs Short-Run.

22 - 9Copyright McGraw-Hill/Irwin, 2005

Economic Costs

Short-Run and Long-Run

Short-Run Production Relationships

Short-Run Production Costs

Short-Run Costs Graphically

Productivity and Cost Curves

Long-Run Production Costs

Economies and Diseconomies of Scale

Minimum Efficient Scale and Industry Structure

Key Terms

PreviousSlide

NextSlide

EndShow

SHORT-RUN COSTS GRAPHICALLY

Quantity

Co

sts

(do

llar

s)

TC

TotalCost

Fixed CostTVC

Variable Cost

TFC

Combining TVCWith TFC to get

Total Cost

Page 10: 22 - 1 Copyright McGraw-Hill/Irwin, 2005 Economic Costs Short-Run and Long-Run Short-Run Production Relationships Short-Run Production Costs Short-Run.

22 - 10Copyright McGraw-Hill/Irwin, 2005

Economic Costs

Short-Run and Long-Run

Short-Run Production Relationships

Short-Run Production Costs

Short-Run Costs Graphically

Productivity and Cost Curves

Long-Run Production Costs

Economies and Diseconomies of Scale

Minimum Efficient Scale and Industry Structure

Key Terms

PreviousSlide

NextSlide

EndShow

ECONOMIC COSTSEconomic Costs or

Opportunity CostsForgoing the opportunity to produce alternative goods and servicesExplicit Costs

Implicit Costs

Page 11: 22 - 1 Copyright McGraw-Hill/Irwin, 2005 Economic Costs Short-Run and Long-Run Short-Run Production Relationships Short-Run Production Costs Short-Run.

22 - 11Copyright McGraw-Hill/Irwin, 2005

Economic Costs

Short-Run and Long-Run

Short-Run Production Relationships

Short-Run Production Costs

Short-Run Costs Graphically

Productivity and Cost Curves

Long-Run Production Costs

Economies and Diseconomies of Scale

Minimum Efficient Scale and Industry Structure

Key Terms

PreviousSlide

NextSlide

EndShow

•Treated as a cost•Required to attract & retain resources

Economic or Pure Profits

EconomicProfit

TotalRevenue

Economic Cost

Normal ProfitsECONOMIC COSTS

Page 12: 22 - 1 Copyright McGraw-Hill/Irwin, 2005 Economic Costs Short-Run and Long-Run Short-Run Production Relationships Short-Run Production Costs Short-Run.

22 - 12Copyright McGraw-Hill/Irwin, 2005

Economic Costs

Short-Run and Long-Run

Short-Run Production Relationships

Short-Run Production Costs

Short-Run Costs Graphically

Productivity and Cost Curves

Long-Run Production Costs

Economies and Diseconomies of Scale

Minimum Efficient Scale and Industry Structure

Key Terms

PreviousSlide

NextSlide

EndShow

EconomicProfit

Implicit costs(including a

normal profit)

ExplicitCosts

Accountingcosts (explicit

costs only)

AccountingProfit

Ec

on

om

ic (

op

po

rtu

nit

y) C

os

ts

TOTAL

REVENUE

Profits to anEconomist

Profits to anAccountant

ECONOMIC COSTS

Page 13: 22 - 1 Copyright McGraw-Hill/Irwin, 2005 Economic Costs Short-Run and Long-Run Short-Run Production Relationships Short-Run Production Costs Short-Run.

22 - 13Copyright McGraw-Hill/Irwin, 2005

Economic Costs

Short-Run and Long-Run

Short-Run Production Relationships

Short-Run Production Costs

Short-Run Costs Graphically

Productivity and Cost Curves

Long-Run Production Costs

Economies and Diseconomies of Scale

Minimum Efficient Scale and Industry Structure

Key Terms

PreviousSlide

NextSlide

EndShow

Total CostTotal Fixed and Variable Costs

Average Total Cost =Total Costs

Quantity

Marginal CostTotal Variable Costs

Marginal Cost =Change in Total Costs

Change in Quantity

SHORT-RUN PRODUCTION COSTS

Page 14: 22 - 1 Copyright McGraw-Hill/Irwin, 2005 Economic Costs Short-Run and Long-Run Short-Run Production Relationships Short-Run Production Costs Short-Run.

22 - 14Copyright McGraw-Hill/Irwin, 2005

Economic Costs

Short-Run and Long-Run

Short-Run Production Relationships

Short-Run Production Costs

Short-Run Costs Graphically

Productivity and Cost Curves

Long-Run Production Costs

Economies and Diseconomies of Scale

Minimum Efficient Scale and Industry Structure

Key Terms

PreviousSlide

NextSlide

EndShow

SHORT-RUN COSTS GRAPHICALLY

Quantity

Co

sts

(do

llar

s)

AFC

AVCATC

MC

Plotting Average andMarginal Costs

http://highered.mcgraw-hill.com/sites/0072819359/student_view0/chapter22/interactive_graphs.html
Page 15: 22 - 1 Copyright McGraw-Hill/Irwin, 2005 Economic Costs Short-Run and Long-Run Short-Run Production Relationships Short-Run Production Costs Short-Run.

22 - 15Copyright McGraw-Hill/Irwin, 2005

Economic Costs

Short-Run and Long-Run

Short-Run Production Relationships

Short-Run Production Costs

Short-Run Costs Graphically

Productivity and Cost Curves

Long-Run Production Costs

Economies and Diseconomies of Scale

Minimum Efficient Scale and Industry Structure

Key Terms

PreviousSlide

NextSlide

EndShow

LONG-RUN PRODUCTION COSTS

All such plant capacitiescan be plotted.

For every plant capacity size...

there is a short-run ATC curve.

Page 16: 22 - 1 Copyright McGraw-Hill/Irwin, 2005 Economic Costs Short-Run and Long-Run Short-Run Production Relationships Short-Run Production Costs Short-Run.

22 - 16Copyright McGraw-Hill/Irwin, 2005

Economic Costs

Short-Run and Long-Run

Short-Run Production Relationships

Short-Run Production Costs

Short-Run Costs Graphically

Productivity and Cost Curves

Long-Run Production Costs

Economies and Diseconomies of Scale

Minimum Efficient Scale and Industry Structure

Key Terms

PreviousSlide

NextSlide

EndShow

SHORT RUN AND LONG RUN

Accounting: Short and long run is based upon annual chronology.

Economics:Short run has fixed plant capacity size.Long run has variable plant capacity size.

Page 17: 22 - 1 Copyright McGraw-Hill/Irwin, 2005 Economic Costs Short-Run and Long-Run Short-Run Production Relationships Short-Run Production Costs Short-Run.

22 - 17Copyright McGraw-Hill/Irwin, 2005

Economic Costs

Short-Run and Long-Run

Short-Run Production Relationships

Short-Run Production Costs

Short-Run Costs Graphically

Productivity and Cost Curves

Long-Run Production Costs

Economies and Diseconomies of Scale

Minimum Efficient Scale and Industry Structure

Key Terms

PreviousSlide

NextSlide

EndShow

LONG-RUN PRODUCTION COSTS

The long-run ATC just “envelopes”all of the short-run ATC curves.

Un

it C

ost

s

Output

Page 18: 22 - 1 Copyright McGraw-Hill/Irwin, 2005 Economic Costs Short-Run and Long-Run Short-Run Production Relationships Short-Run Production Costs Short-Run.

22 - 18Copyright McGraw-Hill/Irwin, 2005

Economic Costs

Short-Run and Long-Run

Short-Run Production Relationships

Short-Run Production Costs

Short-Run Costs Graphically

Productivity and Cost Curves

Long-Run Production Costs

Economies and Diseconomies of Scale

Minimum Efficient Scale and Industry Structure

Key Terms

PreviousSlide

NextSlide

EndShow

LONG-RUN PRODUCTION COSTS

Un

it C

ost

s

Output

long-run ATC

Page 19: 22 - 1 Copyright McGraw-Hill/Irwin, 2005 Economic Costs Short-Run and Long-Run Short-Run Production Relationships Short-Run Production Costs Short-Run.

22 - 19Copyright McGraw-Hill/Irwin, 2005

Economic Costs

Short-Run and Long-Run

Short-Run Production Relationships

Short-Run Production Costs

Short-Run Costs Graphically

Productivity and Cost Curves

Long-Run Production Costs

Economies and Diseconomies of Scale

Minimum Efficient Scale and Industry Structure

Key Terms

PreviousSlide

NextSlide

EndShow

ECONOMIES ANDDISECONOMIES OF SCALE

Un

it C

ost

s

Output

long-run ATC

Economiesof scale

Diseconomiesof scale

Constant returnsto scale


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