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Production and Cost

Production and Cost. Figure 1 The Firm and Its Environment. Percent of Firms. Percent of Total Sales. Corporations 20%. Partnerships 7%. Corporations 90%. Sole Proprietorships 73%. Partnerships 4%. Sole Proprietorships 6%. Figure 2 Forms of Business Organization.

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Production and Cost

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  1. Production and Cost

  2. Figure 1 The Firm and Its Environment

  3. Percent of Firms Percent of Total Sales Corporations 20% Partnerships 7% Corporations 90% SoleProprietorships 73% Partnerships 4% SoleProprietorships 6% Figure 2 Forms of Business Organization

  4. Figure 3 The Firm’s Production Function

  5. Table 1 Short-Run Production at Spotless Car Wash

  6. Units of Output Number of Workers 1 6 2 4 3 5 Figure 4 Total And Marginal Product Total Product 196 184 161 DQ from hiring fourth worker 130 DQ from hiring third worker 90 DQ from hiring second worker 30 DQ from hiring first worker increasing marginal returns diminishing marginal returns

  7. Table 2 A Firm’s Costs

  8. Table 3 Short-Run Costs for Spotless Car Wash

  9. Dollars $435 375 315 255 195 135 0 30 90 130 161 184 196 Units of Output Figure 5 The Firm’s Total Cost Curves TC TVC TFC TFC

  10. Dollars $4 3 2 1 30 90 130 161 196 0 Units of Output Figure 6 Average and Marginal Costs MC AFC ATC AVC

  11. Table 4 Average and Marginal Test Scores

  12. Table 5 Four Ways to Wash 196 Cars per Day

  13. Table 6 Long-Run Costs for Spotless Car Wash

  14. Dollars $4.00 3.00 2.00 1.00 30 90 130 161 184 250 300 0 196 Units of Output Figure 7 Long-Run Average Total Cost ATC1 LRATC ATC3 ATC0 ATC2 C D B E A 175 Use 0 automated lines Use 1 automated lines Use 2 automated lines Use 3 automated lines

  15. Dollars $4.00 3.00 2.00 1.00 130 184 Figure 8 The Shape of LRATC LRATC 0 Economies of Scale Constant Returns to Scale Diseconomies of Scale Units of Output

  16. Dollars $160 80 1,000 3,000 100,000 0 Units per Month Figure 9 How LRATC Helps Explain Market Structure (a) A Market with Many Small Firms LRATCTypical Firm F E DMarket

  17. Dollars $160 80 100,000 0 Units per Month Figure 9 How LRATC Helps Explain Market Structure (b) A Natural Monopoly LRATCTypical Firm DMarket

  18. Dollars $200 80 100,000 25,000 0 Units per Month Figure 9 How LRATC Helps Explain Market Structure (c) A Market with a Few Large Firms LRATCTypical Firm H F E DMarket

  19. Dollars $160 80 1,000 10,000 100,000 0 Units per Month Figure 9 How LRATC Helps Explain Market Structure (d) A Market with Coexisting Small and Large Firms LRATCTypical Firm E F DMarket

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