tailieunhanh - Lecture Business economics - Lecture 8: The costs of production - II

The following will be discussed in this chapter: What are costs? costs as opportunity costs, production and costs, various measures of cost, costs in the short run and in the long run. | Review of the previous lecture The goal of firms is to maximize profit, which equals total revenue minus total cost. When analyzing a firm’s behavior, it is important to include all the opportunity costs of production. Some opportunity costs are explicit while other opportunity costs are implicit. A firm’s costs reflect its production process. Linear production function: inputs are perfect substitutes. Review of the previous lecture Leontief production function: inputs are used in fixed proportions. Cobb-Douglas production function: inputs have a degree of substitutability. A typical firm’s production function gets flatter as the quantity of input increases, displaying the property of diminishing marginal product. Lecture 8 The Costs of Production- II Instructor: Abbas Course code: ECO 400 Lecture Outline Various Measures of Cost Costs in the Short Run and in the Long Run The Various Measures of Cost Costs of production may be divided into fixed costs and variable . | Review of the previous lecture The goal of firms is to maximize profit, which equals total revenue minus total cost. When analyzing a firm’s behavior, it is important to include all the opportunity costs of production. Some opportunity costs are explicit while other opportunity costs are implicit. A firm’s costs reflect its production process. Linear production function: inputs are perfect substitutes. Review of the previous lecture Leontief production function: inputs are used in fixed proportions. Cobb-Douglas production function: inputs have a degree of substitutability. A typical firm’s production function gets flatter as the quantity of input increases, displaying the property of diminishing marginal product. Lecture 8 The Costs of Production- II Instructor: Abbas Course code: ECO 400 Lecture Outline Various Measures of Cost Costs in the Short Run and in the Long Run The Various Measures of Cost Costs of production may be divided into fixed costs and variable costs. Fixed costs are those costs that do not vary with the quantity of output produced. Variable costs are those costs that do vary with the quantity of output produced. Total Costs Total Fixed Costs (TFC) Total Variable Costs (TVC) Total Costs (TC) TC = TFC + TVC The Various Measures of Cost Average Costs Average costs can be determined by dividing the firm’s costs by the quantity of output it produces. The average cost is the cost of each typical unit of product. Average Costs Average Fixed Costs (AFC) Average Variable Costs (AVC) Average Total Costs (ATC) ATC = AFC + AVC The Various Measures of Cost Marginal Cost Marginal cost (MC) measures the increase in total cost that arises from an extra unit of production. Marginal cost helps answer the following question: How much does it cost to produce an additional unit of output? The Various Measures of Cost The Various Measures of Cost: Lemonade Stand The Various Measures of Cost Marginal Cost: Lemonade Stand The Various Measures of Cost .

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