内容成果经济学1lecture

1、chapter: 12Krugman/Wells2009 Worth PublishersBehind the Supply Curve: Inputs and CostsThe importance of the firms production function, the relationship between quantity of inputs and quantity of outputWhy production is often subject to diminishing returns to inputsThe various types of costs a firm f

2、aces and how they generate the firms marginal and average cost curvesWhy a firms costs may differ in the short run versus the long runHow the firms technology of production can generate increasing returns to scaleThe Production FunctionA production function is the relationship between the quantity o

3、f inputs a firm uses and the quantity of output it produces.A fixed input is an input whose quantity is fixed for a period of time and cannot be varied.A variable input is an input whose quantity the firm can vary at any time.Inputs and OutputThe long run is the time period in which all inputs can b

4、e varied.The short run is the time period in which at least one input is fixed.The total product curve shows how the quantity of output depends on the quantity of the variable input, for a given quantity of the fixed input.Production Function and TP Curve forGeorge and Marthas FarmAlthough the total

5、 product curve in the figure slopes upward along its entire length, the slope isnt constant: as you move up the curve to the right, it flattens out due to changing marginal product of labor.012345678191715131197501936516475849196Quantity of labor L(worker)Quantity of wheat Q(bushels)MP of laborMPL =

6、DQ/DL(bushels per worker)78654321010080604020Quantity of wheat (bushels)Quantity of labor (workers)Total product, TPAdding a 7th worker leads to an increase in output of only 7 bushelsAdding a 2nd worker leads to an increase in output of only 17 bushelsThe marginal product of an input is the additio

7、nal quantity of output that is produced by using one more unit of that input.Marginal Product of LaborDiminishing Returns to an InputThere are diminishing returns to an input when an increase in the quantity of that input, holding the levels of all other inputs fixed, leads to a decline in the margi

8、nal product of that input.The following marginal product of labor curve illustrates this concept clearlyHere, the first worker employed generates an increase in output of 19 bushels, the second worker generates an increase of 17 bushels, and so onMarginal Product of Labor CurveMarginal product of la

9、bor, MPL7865432101917151311975Marginal product of labor (bushels per worker)Quantity of labor (workers)There are diminishing returns to labor.With more land, each worker can produce more wheat. So an increase in the fixed input shifts the total product curve up from TP10 to TP20.This shift also impl

10、ies that the marginal product of each worker is higher when the farm is larger. As a result, an increase in acreage also shifts the marginal product of labor curve up from MPL10 to MPL20.(a) Total Product Curves(b) Marginal Product CurvesMarginal product of labor (bushels per worker)Quantity of whea

11、t (bushels)7865432103025201510578654321016014012010080604020TP20TP10MPL20MPL10Quantity of labor (workers)Quantity of labor (workers)Total Product, Marginal Product, and the Fixed InputWhats a Unit? The marginal product of labor (or any other input) is defined as the increase in the quantity of outpu

12、t when you increase the quantity of that input by one unit.What do we mean by a “unit” of labor? Is it an additional hour of labor, an additional week, or a person-year?The answer is that it doesnt matter, as long as you are consistent.One common source of error in economics is getting units confuse

13、dsay, comparing the output added by an additional hour of labor with the cost of employing a worker for a week. Whatever units you use, always be careful that you use the same units throughout your analysis of any problem.From the Production Function to Cost CurvesA fixed cost is a cost that does no

14、t depend on the quantity of output produced. It is the cost of the fixed input.A variable cost is a cost that depends on the quantity of output produced. It is the cost of the variable input.Total Cost CurveThe total cost of producing a given quantity of output is the sum of the fixed cost and the v

15、ariable cost of producing that quantity of output.TC = FC + VCThe total cost curve es steeper as more output is produced due to diminishing returns.Total Cost Curve for George and Marthas Farm19365164758491960$2,0001,8001,6001,4001,2001,000800600400200CostQuantity of wheat (bushels)ABCDEFGTotal cost

16、, TCHIABCDEFGHIPoint on graph012345678$400400400400400400400400400O2004006008001,0001,2001,4001,6004006008001,0001,2001,4001,6001,8002,00001936516475849196Variable cost(VC)Total cost(TC = FC + VC)$Quantity of labor L(worker)Quantity of wheat Q(bushels)Fixed Cost (FC)Case: The Mythical Man-Month“Addi

17、ng another programmer on a project actually increases the time to completion”The source of the diminishing returns lies in the nature of the production function for a programming project: Each programmer must coordinate his or her work with that of all the other programmers on the project, leading t

18、o each person spending more and more time communicating with others as the number of programmers increases.The Mythical Man-MonthQuantity of labor (programmers)TPMPL00Quantity of labor (programmers)Marginal product of labor (lines per programmer)Quantity of software code (lines)Beyond a certain poin

19、t, an additional programmer is counterproductive.Two Key Concepts: Marginal Cost and Average CostAs in the case of marginal product, marginal cost is equal to “rise” (the increase in total cost) divided by “run” (the increase in the quantity of output).Costs at Selenas Gourmet SalsasTotal Cost and M

20、arginal Cost Curves for Selenas Gourmet Salsas$25020015010050Cost of case789106543210$1,4001,2001,000800600400200CostQuantity of salsa (cases)789106543210(b) Marginal Cost(a) Total CostTCMCQuantity of salsa (cases)8th case of salsa increases total cost by $180.2nd case of salsa increases total cost

21、by $36.Why is the Marginal Cost Curve Upward Sloping?Because there are diminishing returns to inputs in this example. As output increases, the marginal product of the variable input declines. This implies that more and more of the variable input must be used to produce each additional unit of output

22、 as the amount of output already produced rises. And since each unit of the variable input must be paid for, the cost per additional unit of output also rises.Average CostAverage total cost, often referred to simply as average cost, is total cost divided by quantity of output produced.ATC = TC/Q = (

23、Total Cost) / (Quantity of Output)A U-shaped average total cost curve falls at low levels of output, then rises at higher levels. Average fixed cost is the fixed cost per unit of output. AFC = FC/Q = (Fixed Cost) / (Quantity of Output)Average CostAverage variable cost is the variable cost per unit o

24、f output. AVC = VC/Q= (Variable Cost) / (Quantity of Output)Average Total Cost CurveIncreasing output, therefore, has two opposing effects on average total costthe “spreading effect” and the “diminishing returns effect”:The spreading effect: the larger the output, the greater the quantity of output

25、over which fixed cost is spread, leading to lower the average fixed cost.The diminishing returns effect: the larger the output, the greater the amount of variable input required to produce additional units leading to higher average variable cost.Average Costs for Selenas Gourmet SalsasAverage Total

26、Cost Curve for Selenas Gourmet SalsasAverage total cost, ATCM789106543210$14012010080604020Minimum average total costMinimum-cost outputCost of caseQuantity of salsa (cases)Putting the Four Cost Curves TogetherNote that:Marginal cost is upward sloping due to diminishing returns.Average variable cost

27、 also is upward sloping but is flatter than the marginal cost curve. Average fixed cost is downward sloping because of the spreading effect.The marginal cost curve intersects the average total cost curve from below, crossing it at its lowest point. This last feature is our next subject of study.Marg

28、inal Cost and Average Cost Curves for Selenas Gourmet Salsas$2502001501005078910654321M0MCATCAVCAFCMinimum-cost outputCost of caseQuantity of salsa (cases)The bottom of the U curve is at the level of output at which the marginal cost curve crosses the average total cost curve from below. Is this an

29、accident? No!General Principles That Are Always True About a Firms Marginal and Average Total Cost CurvesThe minimum-cost output is the quantity of output at which average total cost is lowestthe bottom of the U-shaped average total cost curve. At the minimum-cost output, average total cost is equal

30、 to marginal cost.At output less than the minimum-cost output, marginal cost is less than average total cost and average total cost is falling.And at output greater than the minimum-cost output, marginal cost is greater than average total cost and average total cost is rising.The Relationship Betwee

31、n the Average Total Cost and the Marginal Cost CurvesWhen marginal cost equals average total cost, we must be at the bottom of the U, because only at that point is average total cost neither falling nor rising. Cost of unitQuantityMCATCMCLMCHA1B1A2B2MIf marginal cost is above average total cost, ave

32、rage total cost is rising. If marginal cost is below average total cost, average total cost is falling. Does the Marginal Cost Curve Always Slope Upward?In practice, marginal cost curves often slope downward as a firm increases its production from zero up to some low level, sloping upward only at hi

33、gher levels of production. This initial downward slope occurs because a firm that employs only a few workers often cannot reap the benefits of specialization of labor. This specialization can lead to increasing returns at first, and so to a downward-sloping marginal cost curve. Once there are enough

34、 workers to permit specialization, however, diminishing returns set in.More Realistic Cost CurvesMCATCAVCCost of unitQuantity2. but diminishing returns set in once the benefits from specialization are exhausted and marginal cost rises.1. Increasing specialization leads to lower marginal costShort-Ru

35、n versus Long-Run CostsIn the short run, fixed cost is completely outside the control of a firm. But all inputs are variable in the long run: This means that in the long run fixed cost may also be varied. In the long run, in other words, a firms fixed cost es a variable it can choose.The firm will c

36、hoose its fixed cost in the long run based on the level of output it expects to produce.There is a trade-off between higher fixed cost and lower variable cost for any given output level, and vice versa.But as output goes up, average total cost is lower with the higher amount of fixed cost.Choosing t

37、he Level of Fixed Cost of Selenas Gourmet SalsasATC112481081923004325887689721,200$1201562163004085406968761,0801,308Total cost$ATC26245496150216294384486600$222240270312366432510600702816Low fixed cost (FC = $108)High fixed cost (FC = $216)$120.0078.0072.0075.0081.6090.0099.43109.50120.00130.80$222

38、.00120.0090.0078.0073.2072.0072.8675.0078.0081.6012345678910Average total cost of caseQuantity of salsa(salsa)High variable costLow variable costTotal costAverage total cost of case$25020015010050Cost of caseQuantity of salsa (cases)789106543210High fixed costLow fixed costATC2ATC1At low output leve

39、ls, low fixed cost yields lower average total costAt high output levels, high fixed cost yields lower average total costThe long-run average total cost curve shows the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of

40、output.The Long-run Average Total Cost CurveShort-Run and Long-Run Average Total Cost CurvesBATC6ATC9ATC3LRATC35847069Increasing returns to scaleDecreasing returns to scaleConstant returns to scaleCXAYCost of caseQuantity of salsa (cases)Returns to ScaleThere are increasing returns to scale (economi

41、es of scale) when long-run average total cost declines as output increases.There are decreasing returns to scale (diseconomies of scale) when long-run average total cost increases as output increases.There are constant returns to scale when long-run average total cost is constant as output increases

42、.The relationship between inputs and output is a producers production function. In the short run, the quantity of a fixed input cannot be varied but the quantity of a variable input can. In the long run, the quantities of all inputs can be varied. For a given amount of the fixed input, the total product curve shows how the quantity of output changes as the quantity of the variable input changes. There are diminishing returns to an input when its marginal product declines as more of the input is used, holding the quantity of all other inputs fix