平狄克微观经济学第七章ppt课件.ppt

,Chapter 7,The Cost of Production,Chapter 1,Slide 2,Topics to be Discussed,Measuring Cost:Which Costs Matter?Cost in the Short RunCost in the Long RunLong-Run Versus Short-Run Cost Curves,Chapter 1,Slide 3,Topics to be Discussed,Production with Two Outputs-Economies of ScopeDynamic Changes in Costs-The Learning CurveEstimating and Predicting Cost,Chapter 1,Slide 4,Introduction,The production technology measures the relationship between input and output.Given the production technology,managers must choose how to produce.,Chapter 1,Slide 5,Introduction,To determine the optimal level of output and the input combinations,we must convert from the unit measurements of the production technology to dollar measurements or costs.,Chapter 1,Slide 6,Measuring Cost:Which Costs Matter?,Accounting CostActual expenses plus depreciation charges for capital equipmentEconomic CostCost to a firm of utilizing economic resources in production,including opportunity cost,Economic Cost vs.Accounting Cost,Chapter 1,Slide 7,Opportunity cost.Cost associated with opportunities that are foregone when a firms resources are not put to their highest-value use.,Measuring Cost:Which Costs Matter?,Chapter 1,Slide 8,An ExampleA firm owns its own building and pays no rent for office spaceDoes this mean the cost of office space is zero?,Measuring Cost:Which Costs Matter?,Chapter 1,Slide 9,Sunk CostExpenditure that has been made and cannot be recoveredShould not influence a firms decisions.,Measuring Cost:Which Costs Matter?,Chapter 1,Slide 10,An ExampleA firm pays$500,000 for an option to buy a building.The cost of the building is$5 million or a total of$5.5 million.The firm finds another building for$5.25 million.Which building should the firm buy?,Measuring Cost:Which Costs Matter?,Chapter 1,Slide 11,Choosing the Locationfor a New Law School Building,Northwestern University Law School1)Current location in downtown Chicago2)Alternative location in Evanston with the main campus,Chapter 1,Slide 12,Northwestern University Law School3)Choosing a SiteLand owned in ChicagoMust purchase land in EvanstonChicago location might appear cheaper without considering the opportunity cost of the downtown land(i.e.what it could be sold for),Choosing the Locationfor a New Law School Building,Chapter 1,Slide 13,Northwestern University Law School3)Choosing a SiteChicago location chosen-very costly Justified only if there is some intrinsic values associated with being in ChicagoIf not,it was an inefficient decision if it was based on the assumption that the downtown land was“free”,Choosing the Locationfor a New Law School Building,Chapter 1,Slide 14,Total output is a function of variable inputs and fixed inputs.Therefore,the total cost of production equals the fixed cost(the cost of the fixed inputs)plus the variable cost(the cost of the variable inputs),or,Measuring Cost:Which Costs Matter?,Fixed and Variable Costs,Chapter 1,Slide 15,Fixed CostDoes not vary with the level of outputVariable Cost Cost that varies as output varies,Measuring Cost:Which Costs Matter?,Fixed and Variable Costs,Chapter 1,Slide 16,Fixed CostCost paid by a firm that is in business regardless of the level of outputSunk Cost Cost that have been incurred and cannot be recovered,Measuring Cost:Which Costs Matter?,Chapter 1,Slide 17,Personal Computers:most costs are variable Components,laborSoftware:most costs are sunkCost of developing the software,Measuring Cost:Which Costs Matter?,Chapter 1,Slide 18,PizzaLargest cost component is fixed,Measuring Cost:Which Costs Matter?,A Firms Short-Run Costs($),050 050-150501005050501002507812828253964350981482016.732.749.34501121621412.52840.555013018018102636650150200208.32533.3750175225257.12532.1850204254296.325.531.8950242292385.626.932.4105030035058530351150385435854.53539.5,Rate ofFixedVariableTotalMarginalAverageAverageAverageOutputCostCostCostCostFixedVariableTotal(FC)(VC)(TC)(MC)CostCostCost(AFC)(AVC)(ATC),Chapter 1,Slide 20,Cost in the Short Run,Marginal Cost(MC)is the cost of expanding output by one unit.Since fixed cost have no impact on marginal cost,it can be written as:,Chapter 1,Slide 21,Cost in the Short Run,Average Total Cost(ATC)is the cost per unit of output,or average fixed cost(AFC)plus average variable cost(AVC).This can be written:,Chapter 1,Slide 22,Cost in the Short Run,Average Total Cost(ATC)is the cost per unit of output,or average fixed cost(AFC)plus average variable cost(AVC).This can be written:,Chapter 1,Slide 23,Cost in the Short Run,The Determinants of Short-Run CostThe relationship between the production function and cost can be exemplified by either increasing returns and cost or decreasing returns and cost.,Chapter 1,Slide 24,Cost in the Short Run,The Determinants of Short-Run CostIncreasing returns and costWith increasing returns,output is increasing relative to input and variable cost and total cost will fall relative to output.Decreasing returns and costWith decreasing returns,output is decreasing relative to input and variable cost and total cost will rise relative to output.,Chapter 1,Slide 25,Cost in the Short Run,For Example:Assume the wage rate(w)is fixed relative to the number of workers hired.Then:,Chapter 1,Slide 26,Cost in the Short Run,Continuing:,Chapter 1,Slide 27,Cost in the Short Run,Continuing:,Chapter 1,Slide 28,Cost in the Short Run,In conclusion:and a low marginal product(MP)leads to a high marginal cost(MC)and vise versa.,Chapter 1,Slide 29,Cost in the Short Run,Consequently(from the table):MC decreases initially with increasing returns 0 through 4 units of outputMC increases with decreasing returns5 through 11 units of output,A Firms Short-Run Costs($),050 050-150501005050501002507812828253964350981482016.732.749.34501121621412.52840.555013018018102636650150200208.32533.3750175225257.12532.1850204254296.325.531.8950242292385.626.932.4105030035058530351150385435854.53539.5,Rate ofFixedVariableTotalMarginalAverageAverageAverageOutputCostCostCostCostFixedVariableTotal(FC)(VC)(TC)(MC)CostCostCost(AFC)(AVC)(ATC),Chapter 1,Slide 31,Cost Curves for a Firm,Chapter 1,Slide 32,Cost Curves for a Firm,Output(units/yr.),Cost($perunit),25,50,75,100,0,1,2,3,4,5,6,7,8,9,10,11,MC,ATC,AVC,AFC,Chapter 1,Slide 33,Cost Curves for a Firm,The line drawn from the origin to the tangent of the variable cost curve:Its slope equals AVCThe slope of a point on VC equals MCTherefore,MC=AVC at 7 units of output(point A),Output,P,100,200,300,400,0,1,2,3,4,5,6,7,8,9,10,11,12,13,FC,VC,A,TC,Chapter 1,Slide 34,Cost Curves for a Firm,Unit CostsAFC falls continuouslyWhen MC AVC or MC ATC,AVC&ATC increase,Chapter 1,Slide 35,Cost Curves for a Firm,Unit CostsMC=AVC and ATC at minimum AVC and ATCMinimum AVC occurs at a lower output than minimum ATC due to FC,Output(units/yr.),Cost($perunit),25,50,75,100,0,1,2,3,4,5,6,7,8,9,10,11,MC,ATC,AVC,AFC,Chapter 1,Slide 36,Operating Costs for Aluminum Smelting($/Ton-based on an output of 600 tons/day),Variable costs that are constant at all output levels,Electricity$316Alumina369Other raw materials125Plant power and fuel10 Subtotal$820,Chapter 1,Slide 37,Operating Costs for Aluminum Smelting($/Ton-based on an output of 600 tons/day),Variable costs that increase when output exceeds 600 tons/day,Labor$150Maintenance120Freight50 Subtotal$320Total operating costs$1140,Chapter 1,Slide 38,The Short-Run VariableCosts of Aluminum Smelting,Output(tons/day),Cost($per ton),1100,1200,1300,300,600,900,1140,Chapter 1,Slide 39,Cost in the Long Run,User Cost of Capital=Economic Depreciation+(Interest Rate)(Value of Capital),The User Cost of Capital,Chapter 1,Slide 40,Cost in the Long Run,ExampleDelta buys a Boeing 737 for$150 million with an expected life of 30 yearsAnnual economic depreciation=$150 million/30=$5 millionInterest rate=10%,The User Cost of Capital,Chapter 1,Slide 41,Cost in the Long Run,ExampleUser Cost of Capital=$5 million+(.10)($150 million depreciation)Year 1=$5 million+(.10)($150 million)=$20 millionYear 10=$5 million+(.10)($100 million)=$15 million,The User Cost of Capital,Chapter 1,Slide 42,Cost in the Long Run,Rate per dollar of capitalr=Depreciation Rate+Interest Rate,The User Cost of Capital,Chapter 1,Slide 43,Cost in the Long Run,Airline ExampleDepreciation Rate=1/30=3.33/yrRate of Return=10%/yrUser Cost of Capitalr=3.33+10=13.33%/yr,The User Cost of Capital,Chapter 1,Slide 44,Cost in the Long Run,AssumptionsTwo Inputs:Labor(L)&capital(K)Price of labor:wage rate(w)The price of capitalR=depreciation rate+interest rate,The Cost Minimizing Input Choice,Chapter 1,Slide 45,Cost in the Long Run,QuestionIf capital was rented,would it change the value of r?,The User Cost of Capital,The Cost Minimizing Input Choice,Chapter 1,Slide 46,Cost in the Long Run,The Isocost LineC=wL+rKIsocost:A line showing all combinations of L&K that can be purchased for the same cost,The User Cost of Capital,The Cost Minimizing Input Choice,Chapter 1,Slide 47,Cost in the Long Run,Rewriting C as linear:K=C/r-(w/r)LSlope of the isocost:is the ratio of the wage rate to rental cost of capital.This shows the rate at which capital can be substituted for labor with no change in cost.,The Isocost Line,Chapter 1,Slide 48,Choosing Inputs,We will address how to minimize cost for a given level of output.We will do so by combining isocosts with isoquants,Chapter 1,Slide 49,Producing a GivenOutput at Minimum Cost,Labor per year,Capitalperyear,Isocost C2 shows quantity Q1 can be produced withcombination K2L2 or K3L3.However,both of theseare higher cost combinationsthan K1L1.,Chapter 1,Slide 50,Input Substitution When an Input Price Change,Labor per year,Capitalperyear,Chapter 1,Slide 51,Cost in the Long Run,Isoquants and Isocosts and the Production Function,Chapter 1,Slide 52,Cost in the Long Run,The minimum cost combination can then be written as:Minimum cost for a given output will occur when each dollar of input added to the production process will add an equivalent amount of output.,Chapter 1,Slide 53,Cost in the Long Run,QuestionIf w=$10,r=$2,and MPL=MPK,which input would the producer use more of?Why?,Chapter 1,Slide 54,The Effect of EffluentFees on Firms Input Choices,Firms that have a by-product to production produce an effluent.An effluent fee is a per-unit fee that firms must pay for the effluent that they emit.How would a producer respond to an effluent fee on production?,Chapter 1,Slide 55,The Scenario:Steel Producer1)Located on a river:Low cost transportation and emission disposal(effluent).2)EPA imposes a per unit effluent fee to reduce the environmentally harmful effluent.,The Effect of EffluentFees on Firms Input Choices,Chapter 1,Slide 56,The Scenario:Steel Producer3)How should the firm respond?,The Effect of EffluentFees on Firms Input Choices,Chapter 1,Slide 57,The Cost-MinimizingResponse to an Effluent Fee,Waste Water(gal./month),Capital(machine hours permonth),10,000,18,000,20,000,0,12,000,2,000,1,000,4,000,3,000,5,000,5,000,Chapter 1,Slide 58,The Cost-MinimizingResponse to an Effluent Fee,2,000,1,000,4,000,3,000,5,000,10,000,18,000,20,000,0,12,000,Capital(machine hours permonth),Waste Water(gal./month),Chapter 1,Slide 59,Observations:The more easily factors can be substituted,the more effective the fee is in reducing the effluent.The greater the degree of substitutes,the less the firm will have to pay(for example:$50,000 with combination B instead of$100,000 with combination A),The Effect of EffluentFees on Firms Input Choices,Chapter 1,Slide 60,Cost minimization with Varying Output LevelsA firms expansion path shows the minimum cost combinations of labor and capital at each level of output.,Cost in the Long Run,Chapter 1,Slide 61,A Firms Expansion Path,Labor per year,Capitalperyear,25,50,75,100,150,100,50,150,300,200,Chapter 1,Slide 62,A Firms Long-Run Total Cost Curve,Output,Units/yr,CostperYear,1000,100,300,200,2000,3000,Chapter 1,Slide 63,Long-Run VersusShort-Run Cost Curves,What happens to average costs when both inputs are variable(long run)versus only having one input that is variable(short run)?,Chapter 1,Slide 64,The Inflexibility ofShort-Run Production,Labor per year,Capitalperyear,Chapter 1,Slide 65,Long-Run Average Cost(LAC)Constant Returns to ScaleIf input is doubled,output will double and average cost is constant at all levels of output.,Long-Run VersusShort-Run Cost Curves,Chapter 1,Slide 66,Long-Run Average Cost(LAC)Increasing Returns to ScaleIf input is doubled,output will more than double and average cost decreases at all levels of output.,Long-Run VersusShort-Run Cost Curves,Chapter 1,Slide 67,Long-Run Average Cost(LAC)Decreasing Returns to ScaleIf input is doubled,the increase in output is less than twice as large and average cost increases with output.,Long-Run VersusShort-Run Cost Curves,Chapter 1,Slide 68,Long-Run Average Cost(LAC)In the long-run:Firms experience increasing and decreasing returns to scale and therefore long-run average cost is“U”shaped.,Long-Run VersusShort-Run Cost Curves,Chapter 1,Slide 69,Long-Run Average Cost(LAC)Long-run marginal cost leads long-run average cost:If LMC LAC,LAC will riseTherefore,LMC=LAC at the minimum of LAC,Long-Run VersusShort-Run Cost Curves,Chapter 1,Slide 70,Long-Run Averageand Marginal Cost,Output,Cost($per unitof output,Chapter 1,Slide 71,QuestionWhat is the relationship between long-run average cost and long-run marginal cost when long-run average cost is constant?,Long-Run VersusShort-Run Cost Curves,Chapter 1,Slide 72,Economies and Diseconomies of ScaleEconomies of ScaleIncrease in output is greater than the increase in inputs.Diseconomies of ScaleIncrease in output is less than the increase in inputs.,Long-Run VersusShort-Run Cost Curves,Chapter 1,Slide 73,Measuring Economies of Scale,Long-Run VersusShort-Run Cost Curves,Chapter 1,Slide 74,Measuring Economies of Scale,Long-Run VersusShort-Run Cost Curves,Chapter 1,Slide 75,Therefore,the following is true:EC 1:MC ACAverage cost indicate increasing diseconomies of scale,Long-Run VersusShort-Run Cost Curves,Chapter 1,Slide 76,The Relationship Between Short-Run and Long-Run CostWe will use short and long-run cost to determine the optimal plant size,Long-Run VersusShort-Run Cost Curves,Chapter 1,Slide 77,Long-Run Cost withConstant Returns to Scale,Output,Cost($per unitof output,Chapter 1,Slide 78,ObservationThe optimal plant size will depend on the anticipated output(e.g.Q1 choose SAC1,etc).The long-run average cost curve is the envelope of the firms short-run average cost curves.QuestionWhat would happen to average cost if an output level other than that shown is chosen?,Long-Run Cost withConstant Returns to Scale,Chapter 1,Slide 79,Long-Run Cost with Economiesand Diseconomies of Scale,Output,Cost($per unitof output,Chapter 1,Slide 80,What is the firms long-run cost curve?Firms can change scale to change output in the long-run.The long-run cost curve is the dark blue portion of the SAC curve which represents the minimum cost for any level of output.,Long-Run Cost withConstant Returns to Scale,Chapter