曼昆微观经济学

13TheCostsofProductionLearningObjectivesExaminewhatitemsareincludedinafirm’scostsofproductionAnalyzethelinkbetweenafirm’sproductionprocessanditstotalcostsLearnthemeaningofaveragetotalcostandmarginalcostandhowtheyarerelatedConsidertheshapeofatypicalfirm’scostcurvesExaminetherelationshipbetweenshort-runandlong-runcostsTheMarketForcesofSupplyandDemandSupplyanddemandarethetwowordsthateconomistsusemostoften.Supplyanddemandaretheforcesthatmakemarketeconomieswork.Modernmicroeconomicsisaboutsupply,demand,andmarketequilibrium.WHATARECOSTS?AccordingtotheLawofSupply:Firmsarewillingtoproduceandsellagreaterquantityofagoodwhenthepriceofthegoodishigh.Thisresultsinasupplycurvethatslopesupward.WHATARECOSTS?TheFirm’sObjectiveTheeconomicgoalofthefirmistomaximizeprofits.MaximumProfitsTotalRevenue,TotalCost,andProfitTotalRevenueTheamountafirmreceivesforthesaleofitsoutput.TotalCostThemarketvalueoftheinputsafirmusesinproduction.TotalRevenue,TotalCost,andProfitProfit

isthefirm’stotalrevenueminusitstotalcost.Profit=Totalrevenue–TotalcostCostsasOpportunityCostsAfirm’scostofproductionincludesalltheopportunitycostsofmakingitsoutputofgoodsandservices.ExplicitandImplicitCostsAfirm’scostofproductionincludeexplicitcostsandimplicitcosts.Explicit

costsareinputcoststhatrequireadirectoutlayofmoneybythefirm.Implicit

costsareinputcoststhatdonotrequireanoutlayofmoneybythefirm.EconomicProfitversusAccountingProfitEconomistsmeasureafirm’seconomicprofit

astotalrevenueminustotalcost,includingbothexplicitandimplicitcosts.Accountantsmeasuretheaccountingprofit

asthefirm’stotalrevenueminusonlythefirm’sexplicitcosts.EconomicProfitversusAccountingProfitWhentotalrevenueexceedsbothexplicitandimplicitcosts,thefirmearnseconomic

profit.Economicprofitissmallerthanaccountingprofit.Figure1EconomicversusAccountantsCopyright©2004South-WesternRevenueTotalopportunitycostsHowanEconomistViewsaFirmHowanAccountantViewsaFirmRevenueEconomicprofitImplicitcostsExplicitcostsExplicitcostsAccountingprofitPRODUCTIONANDCOSTSTheProductionFunctionTheproductionfunction

showstherelationshipbetweenquantityofinputsusedtomakeagoodandthequantityofoutputofthatgood.TheProductionFunctionMarginalProductThemarginalproduct

ofanyinputintheproductionprocessistheincreaseinoutputthatarisesfromanadditionalunitofthatinput.TheProductionFunctionDiminishingMarginalProductDiminishingmarginalproduct

isthepropertywherebythemarginalproductofaninputdeclinesasthequantityoftheinputincreases.Example:Asmoreandmoreworkersarehiredatafirm,eachadditionalworkercontributeslessandlesstoproductionbecausethefirmhasalimitedamountofequipment.Figure2HungryHelen’sProductionFunctionCopyright©2004South-WesternQuantityofOutput(cookiesperhour)150140130120110100908070605040302010NumberofWorkersHired012345ProductionfunctionTheProductionFunctionDiminishingMarginalProduct

Theslopeoftheproductionfunctionmeasuresthemarginalproductofaninput,suchasaworker.Whenthemarginalproductdeclines,theproductionfunctionbecomesflatter.FromtheProductionFunctiontotheTotal-CostCurveTherelationshipbetweenthequantityafirmcanproduceanditscostsdeterminespricingdecisions.Thetotal-costcurveshowsthisrelationshipgraphically.Table3AProductionFunctionandTotalCost:HungryHelen’sCookieFactoryCopyright©2004South-WesternFigure3HungryHelen’sTotal-CostCurveCopyright©2004South-WesternTotalCost$8070605040302010QuantityofOutput(cookiesperhour)0102030150130110907050401401201008060Total-costcurveTHEVARIOUSMEASURESOFCOSTCostsofproductionmaybedividedintofixedcosts

andvariablecosts.FixedandVariableCostsFixedcostsarethosecoststhatdonot

varywiththequantityofoutputproduced.Variablecosts

arethosecoststhatdovary

withthequantityofoutputproduced.FixedandVariableCostsTotalCostsTotalFixedCosts(TFC)TotalVariableCosts(TVC)TotalCosts(TC)TC=TFC+TVCTable4TheVariousMeasuresofCost:ThirstyThelma’sLemonadeStandCopyright©2004South-WesternFixedandVariableCostsAverageCostsAveragecostscanbedeterminedbydividingthefirm’scostsbythequantityofoutputitproduces.Theaveragecostisthecostofeachtypicalunitofproduct.FixedandVariableCostsAverageCostsAverageFixedCosts(AFC)AverageVariableCosts(AVC)AverageTotalCosts(ATC)ATC=AFC+AVCAverageCostsTable2TheVariousMeasuresofCost:ThirstyThelma’sLemonadeStandCopyright©2004South-WesternFixedandVariableCostsMarginalCostMarginalcost

(MC)measurestheincreaseintotalcostthatarisesfromanextraunitofproduction.Marginalcosthelpsanswerthefollowingquestion:Howmuchdoesitcosttoproduceanadditionalunitofoutput?MarginalCostMarginalCost

ThirstyThelma’sLemonadeStandFigure4ThirstyThelma’sTotal-CostCurvesCopyright©2004South-WesternTotalCost$15.0014.0013.0012.0011.0010.009.008.007.006.005.004.003.002.001.00QuantityofOutput(glassesoflemonadeperhour)014327659810Total-costcurveFigure5ThirstyThelma’sAverage-CostandMarginal-CostCurvesCopyright©2004South-WesternCosts$3.503.253.002.752.502.252.001.751.501.251.000.750.500.25QuantityofOutput(glassesoflemonadeperhour)014327659810MCATCAVCAFCCostCurvesandTheirShapesMarginalcostriseswiththeamountofoutputproduced.Thisreflectsthepropertyofdiminishingmarginalproduct.CostCurvesandTheirShapesTheaveragetotal-costcurveisU-shaped.Atverylowlevelsofoutputaveragetotalcostishighbecausefixedcostisspreadoveronlyafewunits.Averagetotalcostdeclinesasoutputincreases.Averagetotalcoststartsrisingbecauseaveragevariablecostrisessubstantially.CostCurvesandTheirShapesThebottomoftheU-shapedATCcurveoccursatthequantitythatminimizesaveragetotalcost.Thisquantityissometimescalledtheefficientscale

ofthefirm.Figure5ThirstyThelma’sAverage-CostandMarginal-CostCurvesCopyright©2004South-WesternCosts$3.503.253.002.752.502.252.001.751.501.251.000.750.500.25QuantityofOutput(glassesoflemonadeperhour)014327659810ATCCostCurvesandTheirShapesRelationshipbetweenMarginalCostandAverageTotalCostWhenevermarginalcostislessthanaveragetotalcost,averagetotalcostisfalling.Whenevermarginalcostisgreaterthanaveragetotalcost,averagetotalcostisrising.Themarginal-costcurvecrossestheaverage-total-costcurveattheefficientscale.Efficientscaleisthequantitythatminimizesaveragetotalcost.Figure5ThirstyThelma’sAverage-CostandMarginal-CostCurvesCopyright©2004South-WesternCosts$3.503.253.002.752.502.252.001.751.501.251.000.750.500.25QuantityofOutput(glassesoflemonadeperhour)014327659810ATCMCTypicalCostCurvesItisnowtimetoexaminetherelationshipsthatexistbetweenthedifferentmeasuresofcost.BigBob’sCostCurvesFigure6BigBob’sCostCurvesCopyright©2004South-Western(a)Total-CostCurve$18.0016.0014.0012.0010.008.006.004.00QuantityofOutput(bagelsperhour)TC42681412102.00TotalCost0Figure6BigBob’sCostCurvesCopyright©2004South-Western(b)Marginal-andAverage-CostCurvesQuantityofOutput(bagelsperhour)Costs$3.002.502.001.501.000.5004268141210MCATCAVCAFCTypicalCostCurvesThreeImportantPropertiesofCostCurvesMarginalcosteventuallyriseswiththequantityofoutput.Theaverage-total-costcurveisU-shaped.Themarginal-costcurvecrossestheaverage-total-costcurveattheminimumofaveragetotalcost.COSTSINTHESHORTRUNANDINTHELONGRUNFormanyfirms,thedivisionoftotalcostsbetweenfixedandvariablecostsdependsonthetimehorizonbeingconsidered.Intheshortrun,somecostsarefixed.Inthelongrun,fixedcostsbecomevariablecosts.COSTSINTHESHORTRUNANDINTHELONGRUNBecausemanycostsarefixedintheshortrunbutvariableinthelongrun,afirm’slong-runcostcurvesdifferfromitsshort-runcostcurves.Figure7AverageTotalCostintheShortandLongRunCopyright©2004South-WesternQuantityofCarsperDay0AverageTotalCost1,200$12,000ATCinshortrunwithsmallfactoryATCinshortrunwithmediumfactoryATCinshortrunwithlargefactoryATCinlongrunEconomiesandDiseconomiesofScaleEconomiesofscale

refertothepropertywherebylong-runaveragetotalcostfallsasthequantityofoutputincreases.Diseconomiesofscale

refertothepropertywherebylong-runaveragetotalcostrisesasthequantityofoutputincreases.Constantreturnstoscale

referstothepropertywherebylong-runaveragetotalcoststaysthesameasthequantityofoutputincreasesFigure7AverageTotalCostintheShortandLongRunCopyright©2004South-WesternQuantityofCarsperDay0AverageTotalCost1,200$12,0001,00010,000EconomiesofscaleATCinshortrunwithsmallfactoryATCinshortrunwithmediumfactoryATCinshortrunwithlar