1 / 19

Costs

Costs. Perloff Chapter 7. Economic cost. business (accounting) costs : only explicit costs (out of pocket) economic costs : explicit cost + implicit cost = opportunity cost opportunity cost value of best alternative use of the resource

heather-cox
Télécharger la présentation

Costs

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Costs Perloff Chapter 7

  2. Economic cost • business (accounting) costs: only explicit costs (out of pocket) • economic costs: explicit cost + implicit cost = opportunity cost • opportunity cost • value of best alternative use of the resource • classic example: "There's no such thing as a free lunch"

  3. Short-run costs Source: Perloff

  4. Cost, $ 400 Short-run cost curves C VC 27 A 1 216 20 1 B 120 48 F 0 2 4 6 8 10 Quantity, q , Units per day 60 MC AC a 28 27 AVC b 20 8 AFC 0 2 4 6 8 10 Quantity, q , Units per day Source: Perloff

  5. Total product curve and VC Quantity, q , Total product of labor, Units per day Variable cost 13 10 6 5 1 0 5 20 24 46 77 25 100 120 230 385 L , Hours of labor per day VC = wL , Variable cost, $ Source: Perloff

  6. Shape of MC and AC curve

  7. The long-run: input choice Source: Perloff

  8. Isocost Lines K , Units of capital per year $150 = 15 — — — $ 10 $100 e = 10 — — — $ 10 d c $50 = 5 — — — $10 b $ 50 isocost $100 isocost $150 isocost a $50 $100 $150 = = = — — — 10 — — — 20 — — — 30 $ 5 $ 5 $ 5 Source: Perloff , Units of labor per year

  9. Cost minimisation Lowest isocost rule K , Units of q = 100 isoquant capital per year Tangency rule 3,000-kr isocost y 303 2,000-kr isocost 1,000-kr isocost x 100 z 28 0 24 50 116 L , Units of labor per year Source: Perloff

  10. Three (equivalent) rules for cost minimisation 1. Lowest Isocost 2. Tangency 3. Last dollar rule (equimarginal returns)

  11. Cobb-Douglas example K , Units of capital per year y 303 At X: x 100 z 28 0 24 50 116 L , Units of labor per year At Y: Source: Perloff

  12. Factor price changes K , Units of q = 100 isoquant capital per year Original isocost, 2,000 kr New isocost, 1,032 kr x 100 v 52 0 50 77 L , Workers per year Source: Perloff

  13. Expansion path K , Units of capital per year 4,000-kr isocost 3,000-kr isocost Expansion path 2,000-kr isocost z 200 y 150 x 100 200 isoquant 150 isoquant 100 isoquant 0 50 75 100 L , Workers per year Source: Perloff

  14. Long run total cost curve Long-run cost curve C , Cost, kroner 4,000 Z 3,000 Y 2,000 X 0 100 150 200 q , Units per year Source: Perloff

  15. Returns to scale and LAC K , Units of capital per year d 8 q = 8 c d : Decreasing returns to scale  c 4 q = 6 b 2 b c : Constant returns to scale  a 1 q = 3 q = 1 a b : Increasing returns to scale  0 1 2 4 8 L , Work hours per year Source: Perloff

  16. Returns to scale and LAC (cont) Source: Perloff

  17. Long and short run expansion K , Capital per year 4,616 kr Long-run expansion path 4,000 kr 2,000 kr z 200 y Short-run x expansion path 100 200 isoquant 100 isoquant 0 50 100 159 L , Workers per year Source: Perloff

  18. Relationship between LAC and SAC Average cost, $ LRAC 3 SRAC 2 SRAC 1 3 SRAC SRAC b 12 d 10 a c e 0 q q q , Output per day 1 2 Source: Perloff

  19. Learning by doing Average cost Improvements in productivity which result from knowledge and experience Economies of scale A B Learning by doing C b 1 AC 2 AC c 3 AC q q q 1 2 3 q , Output per period Source: Perloff

More Related