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Lecture Microeconomics: Theory and applications (12th edition): Chapter 8 - Browning, Zupan

Chapter 8 - The cost of production. In this chapter students will be able to: Delineate the nature of a firm’s cost - explicit as well as implicit, outline how cost is likely to vary with output in the short run and various measures of shortrun cost, detail the typical shapes of a firm’s short-run cost curves,. | MICROECONOMICS: Theory & Applications By Edgar K. Browning & Mark A. Zupan John Wiley & Sons, Inc. 12th Edition, Copyright 2015 Chapter 8: The Cost of Production Prepared by Dr. Della Lee Sue, Marist College Learning Objectives Delineate the nature of a firm’s cost—explicit as well as implicit. Outline how cost is likely to vary with output in the short run and various measures of shortrun cost. Detail the typical shapes of a firm’s short-run cost curves. See how a firm will choose to combine inputs in its production process in the long run when all inputs are variable. Show how input price changes affect a firm’s cost curves. Differentiate between a firm’s long-run and short-run cost curves. (continued) Learning Objectives (continued) Explain the impact of learning by doing on production cost. Understand how the minimum efficient scale of production is related to market structure. Describe how cost curves can be applied to the problem of controlling pollution. Cover economies of | MICROECONOMICS: Theory & Applications By Edgar K. Browning & Mark A. Zupan John Wiley & Sons, Inc. 12th Edition, Copyright 2015 Chapter 8: The Cost of Production Prepared by Dr. Della Lee Sue, Marist College Learning Objectives Delineate the nature of a firm’s cost—explicit as well as implicit. Outline how cost is likely to vary with output in the short run and various measures of shortrun cost. Detail the typical shapes of a firm’s short-run cost curves. See how a firm will choose to combine inputs in its production process in the long run when all inputs are variable. Show how input price changes affect a firm’s cost curves. Differentiate between a firm’s long-run and short-run cost curves. (continued) Learning Objectives (continued) Explain the impact of learning by doing on production cost. Understand how the minimum efficient scale of production is related to market structure. Describe how cost curves can be applied to the problem of controlling pollution. Cover economies of scope—is it cheaper for one firm to produce products jointly than it is for separate firms to produce the same products independently? Overview how cost functions can be empirically estimated through surveys and regression analysis. Explain the mathematics behind production costs. 8.1 THE NATURE OF COST Delineate the nature of a firm’s cost—explicit as well as implicit. The Nature of Cost Recall: Explicit costs – arise from transactions in which the firm purchases inputs or the services of inputs from other parties Implicit costs – costs associated with the use of the firm’s own resources and reflect the fact that these resources could be employed elsewhere Opportunity cost reflects both explicit and implicit costs. 8.2 SHORT-RUN COST OF PRODUCTION Outline how cost is likely to vary with output in the short run and various measures of shortrun cost. Measures of Short-Run Cost Total fixed cost (TFC) – the cost incurred by the firm that does not depend on how much output