tailieunhanh - Lecture Microeconomics: Chapter 7 - Besanko, Braeutigam

Chapter 7 - Costs and cost minimization. This chapter presents the following content: What are costs? long run cost minimization (the constraint minimization problem, comparative statics, input demands), short run cost minimization. | 1 Costs and Cost Minimization Chapter 7 Copyright (c)2014 John Wiley & Sons, Inc. 1 2 Chapter Seven Overview 1. What are Costs? 2. Long Run Cost Minimization The constraint minimization problem Comparative statics Input demands Short Run Cost Minimization Chapter Seven Copyright (c)2014 John Wiley & Sons, Inc. 3 Explicit Costs – Costs that involve a direct monetary outlay. Chapter Seven Explicit Costs and Implicit Costs Implicit Costs – Costs that do not involve outlays of cash. Copyright (c)2014 John Wiley & Sons, Inc. 4 The relevant concept of cost is opportunity cost: the value of a resource in its best alternative use. The only alternative we consider is the best alternative Chapter Seven Opportunity Cost Copyright (c)2014 John Wiley & Sons, Inc. 5 Economic Costs – Sum of a firm’s explicit costs and implicit Costs. Chapter Seven Economic Costs and Accounting Costs Accounting Costs – Total of a firm’s explicit costs. Copyright (c)2014 John Wiley & Sons, Inc. 6 Sunk Costs are costs | 1 Costs and Cost Minimization Chapter 7 Copyright (c)2014 John Wiley & Sons, Inc. 1 2 Chapter Seven Overview 1. What are Costs? 2. Long Run Cost Minimization The constraint minimization problem Comparative statics Input demands Short Run Cost Minimization Chapter Seven Copyright (c)2014 John Wiley & Sons, Inc. 3 Explicit Costs – Costs that involve a direct monetary outlay. Chapter Seven Explicit Costs and Implicit Costs Implicit Costs – Costs that do not involve outlays of cash. Copyright (c)2014 John Wiley & Sons, Inc. 4 The relevant concept of cost is opportunity cost: the value of a resource in its best alternative use. The only alternative we consider is the best alternative Chapter Seven Opportunity Cost Copyright (c)2014 John Wiley & Sons, Inc. 5 Economic Costs – Sum of a firm’s explicit costs and implicit Costs. Chapter Seven Economic Costs and Accounting Costs Accounting Costs – Total of a firm’s explicit costs. Copyright (c)2014 John Wiley & Sons, Inc. 6 Sunk Costs are costs that must be incurred no matter what the decision. These costs are not part of opportunity costs. Chapter Seven Sunk Costs It costs $5M to build and has no alternative uses $5M is not sunk cost for the decision of whether or not to build the factory $5M is sunk cost for the decision of whether to operate or shut down the factory Example: Bowling Ball Factory Non-Sunk Costs are costs that must be incurred only if a particular decision is made. Copyright (c)2014 John Wiley & Sons, Inc. 7 Chapter Seven Cost Minimization Cost minimization problem: Finding the input combination that minimizes a firm’s total cost of producing a particular level of output. Cost minimization firm: A firm that seeks to minimize the cost of producing a given amount of output. Long run: A period of time when the quantities of all of the firm’s input can vary. Short run: A period of time when at least one of its inputs’ quantities is fixed. Copyright (c)2014 John Wiley & Sons, Inc. 8 Chapter Seven Long-Run Cost .