chapter7平狄克微观经济学.pptx

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1、Slide 1Topics to be DiscussedMeasuring Cost:Which Costs Matter?Cost in the Short RunCost in the Long RunLong-Run Versus Short-Run Cost Curves第1页/共132页Slide 2Topics to be DiscussedProduction with Two Outputs-Economies of ScopeDynamic Changes in Costs-The Learning CurveEstimating and Predicting Cost第2

2、页/共132页Slide 3IntroductionThe production technology measures the relationship between input and output.Given the production technology,managers must choose how to produce.第3页/共132页Slide 4IntroductionTo determine the optimal level of output and the input combinations,we must convert from the unit mea

3、surements of the production technology to dollar measurements or costs.第4页/共132页Slide 5Measuring Cost:Which Costs Matter?Accounting CostActual expenses plus depreciation charges for capital equipmentEconomic CostCost to a firm of utilizing economic resources in production,including opportunity costE

4、conomic Cost vs.Accounting Cost第5页/共132页Slide 6Opportunity cost.Cost associated with opportunities that are foregone when a firms resources are not put to their highest-value use.Measuring Cost:Which Costs Matter?第6页/共132页Slide 7An ExampleA firm owns its own building and pays no rent for office spac

5、eDoes this mean the cost of office space is zero?Measuring Cost:Which Costs Matter?第7页/共132页Slide 8Sunk CostExpenditure that has been made and cannot be recoveredShould not influence a firms decisions.Measuring Cost:Which Costs Matter?第8页/共132页Slide 9An ExampleA firm pays$500,000 for an option to bu

6、y a building.The cost of the building is$5 million or a total of$5.5 million.The firm finds another building for$5.25 million.Which building should the firm buy?Measuring Cost:Which Costs Matter?第9页/共132页Slide 10Choosing the Locationfor a New Law School BuildingNorthwestern University Law School1)Cu

7、rrent location in downtown Chicago2)Alternative location in Evanston with the main campus第10页/共132页Slide 11Northwestern University Law School3)Choosing a SiteLand owned in ChicagoMust purchase land in EvanstonChicago location might appear cheaper without considering the opportunity cost of the downt

8、own land(i.e.what it could be sold for)Choosing the Locationfor a New Law School Building第11页/共132页Slide 12Northwestern University Law School3)Choosing a SiteChicago location chosen-very costly Justified only if there is some intrinsic values associated with being in ChicagoIf not,it was an ineffici

9、ent decision if it was based on the assumption that the downtown land was“free”Choosing the Locationfor a New Law School Building第12页/共132页Slide 13Total output is a function of variable inputs and fixed inputs.Therefore,the total cost of production equals the fixed cost(the cost of the fixed inputs)

10、plus the variable cost(the cost of the variable inputs),orMeasuring Cost:Which Costs Matter?Fixed and Variable Costs第13页/共132页Slide 14Fixed CostDoes not vary with the level of outputVariable Cost Cost that varies as output variesMeasuring Cost:Which Costs Matter?Fixed and Variable Costs第14页/共132页Sli

11、de 15Fixed CostCost paid by a firm that is in business regardless of the level of outputSunk Cost Cost that have been incurred and cannot be recoveredMeasuring Cost:Which Costs Matter?第15页/共132页Slide 16Personal Computers:most costs are variable Components,laborSoftware:most costs are sunkCost of dev

12、eloping the softwareMeasuring Cost:Which Costs Matter?第16页/共132页Slide 17PizzaLargest cost component is fixedMeasuring Cost:Which Costs Matter?第17页/共132页A Firms Short-Run Costs($)050 050-150501005050501002507812828253964350981482016.732.749.34501121621412.52840.555013018018102636650150200208.32533.37

13、50175225257.12532.1850204254296.325.531.8950242292385.626.932.4105030035058530351150385435854.53539.5Rate ofFixedVariableTotalMarginalAverageAverageAverageOutputCostCostCostCostFixedVariableTotal(FC)(VC)(TC)(MC)CostCostCost(AFC)(AVC)(ATC)第18页/共132页Slide 19Cost in the Short RunMarginal Cost(MC)is the

14、 cost of expanding output by one unit.Since fixed cost have no impact on marginal cost,it can be written as:第19页/共132页Slide 20Cost in the Short RunAverage Total Cost(ATC)is the cost per unit of output,or average fixed cost(AFC)plus average variable cost(AVC).This can be written:第20页/共132页Slide 21Cos

15、t in the Short RunAverage Total Cost(ATC)is the cost per unit of output,or average fixed cost(AFC)plus average variable cost(AVC).This can be written:第21页/共132页Slide 22Cost in the Short RunThe Determinants of Short-Run CostThe relationship between the production function and cost can be exemplified

16、by either increasing returns and cost or decreasing returns and cost.第22页/共132页Slide 23Cost in the Short RunThe Determinants of Short-Run CostIncreasing returns and costWith increasing returns,output is increasing relative to input and variable cost and total cost will fall relative to output.Decrea

17、sing returns and costWith decreasing returns,output is decreasing relative to input and variable cost and total cost will rise relative to output.第23页/共132页Slide 24Cost in the Short RunFor Example:Assume the wage rate(w)is fixed relative to the number of workers hired.Then:第24页/共132页Slide 25Cost in

18、the Short RunContinuing:第25页/共132页Slide 26Cost in the Short RunContinuing:第26页/共132页Slide 27Cost in the Short RunIn conclusion:and a low marginal product(MP)leads to a high marginal cost(MC)and vise versa.第27页/共132页Slide 28Cost in the Short RunConsequently(from the table):MC decreases initially with

19、 increasing returns 0 through 4 units of outputMC increases with decreasing returns5 through 11 units of output第28页/共132页A Firms Short-Run Costs($)050 050-150501005050501002507812828253964350981482016.732.749.34501121621412.52840.555013018018102636650150200208.32533.3750175225257.12532.1850204254296

20、.325.531.8950242292385.626.932.4105030035058530351150385435854.53539.5Rate ofFixedVariableTotalMarginalAverageAverageAverageOutputCostCostCostCostFixedVariableTotal(FC)(VC)(TC)(MC)CostCostCost(AFC)(AVC)(ATC)第29页/共132页Slide 30Cost Curves for a FirmOutputCost($peryear)100200300400012345678910111213VCV

21、ariable costincreases with production andthe rate varies withincreasing&decreasing returns.TCTotal costis the verticalsum of FC and VC.FC50Fixed cost does notvary with output第30页/共132页Slide 31Cost Curves for a FirmOutput(units/yr.)Cost($perunit)25507510001234567891011MCATCAVCAFC第31页/共132页Slide 32Cos

22、t Curves for a FirmThe line drawn from the origin to the tangent of the variable cost curve:Its slope equals AVCThe slope of a point on VC equals MCTherefore,MC=AVC at 7 units of output(point A)OutputP100200300400012345678910111213FCVCATC第32页/共132页Slide 33Cost Curves for a FirmUnit CostsAFC falls co

23、ntinuouslyWhen MC AVC or MC AVC or MC ATC,AVC&ATC increaseOutput(units/yr.)Cost($perunit)25507510001234567891011MCATCAVCAFC第33页/共132页Slide 34Cost Curves for a FirmUnit CostsMC=AVC and ATC at minimum AVC and ATCMinimum AVC occurs at a lower output than minimum ATC due to FCOutput(units/yr.)Cost($peru

24、nit)25507510001234567891011MCATCAVCAFC第34页/共132页Slide 35Operating Costs for Aluminum Smelting($/Ton-based on an output of 600 tons/day)Variable costs that are constant at all output levelsElectricity$316Alumina369Other raw materials125Plant power and fuel10 Subtotal$820第35页/共132页Slide 36Operating Co

25、sts for Aluminum Smelting($/Ton-based on an output of 600 tons/day)Variable costs that increase when output exceeds 600 tons/dayLabor$150Maintenance120Freight50 Subtotal$320Total operating costs$1140第36页/共132页Slide 37The Short-Run VariableCosts of Aluminum SmeltingOutput(tons/day)Cost($per ton)11001

26、20013003006009001140MCAVC第37页/共132页Slide 38Cost in the Long RunUser Cost of Capital=Economic Depreciation+(Interest Rate)(Value of Capital)The User Cost of Capital第38页/共132页Slide 39Cost in the Long RunExampleDelta buys a Boeing 737 for$150 million with an expected life of 30 yearsAnnual economic dep

27、reciation=$150 million/30=$5 millionInterest rate=10%The User Cost of Capital第39页/共132页Slide 40Cost in the Long RunExampleUser Cost of Capital=$5 million+(.10)($150 million depreciation)Year 1=$5 million+(.10)($150 million)=$20 millionYear 10=$5 million+(.10)($100 million)=$15 millionThe User Cost o

28、f Capital第40页/共132页Slide 41Cost in the Long RunRate per dollar of capitalr=Depreciation Rate+Interest RateThe User Cost of Capital第41页/共132页Slide 42Cost in the Long RunAirline ExampleDepreciation Rate=1/30=3.33/yrRate of Return=10%/yrUser Cost of Capitalr=3.33+10=13.33%/yrThe User Cost of Capital第42

29、页/共132页Slide 43Cost in the Long RunAssumptionsTwo Inputs:Labor(L)&capital(K)Price of labor:wage rate(w)The price of capitalR=depreciation rate+interest rateThe Cost Minimizing Input Choice第43页/共132页Slide 44Cost in the Long RunQuestionIf capital was rented,would it change the value of r?The User Cost

30、 of CapitalThe Cost Minimizing Input Choice第44页/共132页Slide 45Cost in the Long RunThe Isocost LineC=wL+rKIsocost:A line showing all combinations of L&K that can be purchased for the same costThe User Cost of CapitalThe Cost Minimizing Input Choice第45页/共132页Slide 46Cost in the Long RunRewriting C as l

31、inear:K=C/r-(w/r)LSlope of the isocost:is the ratio of the wage rate to rental cost of capital.This shows the rate at which capital can be substituted for labor with no change in cost.The Isocost Line第46页/共132页Slide 47Choosing Inputs We will address how to minimize cost for a given level of output.W

32、e will do so by combining isocosts with isoquants第47页/共132页Slide 48Producing a GivenOutput at Minimum CostLabor per yearCapitalperyearIsocost C2 shows quantity Q1 can be produced withcombination K2L2 or K3L3.However,both of theseare higher cost combinationsthan K1L1.Q1Q1 is an isoquantfor output Q1.

33、Isocost curve C0 showsall combinations of K and Lthat can produce Q1 at thiscost level.C0C1C2CO C1 C2 arethreeisocost linesAK1L1K3L3K2L2第48页/共132页Slide 49Input Substitution When an Input Price ChangeC2This yields a new combinationof K and L to produce Q1.Combination B is used in placeof combination

34、A.The new combination represents the higher cost of labor relativeto capital and therefore capital is substituted for labor.K2L2BC1K1L1AQ1If the price of laborchanges,the isocost curvebecomes steeper due to the change in the slope-(w/L).Labor per yearCapitalperyear第49页/共132页Slide 50Cost in the Long

35、RunIsoquants and Isocosts and the Production Function第50页/共132页Slide 51Cost in the Long RunThe minimum cost combination can then be written as:Minimum cost for a given output will occur when each dollar of input added to the production process will add an equivalent amount of output.第51页/共132页Slide

36、52Cost in the Long RunQuestionIf w=$10,r=$2,and MPL=MPK,which input would the producer use more of?Why?第52页/共132页Slide 53The Effect of EffluentFees on Firms Input ChoicesFirms that have a by-product to production produce an effluent.An effluent fee is a per-unit fee that firms must pay for the efflu

37、ent that they emit.How would a producer respond to an effluent fee on production?第53页/共132页Slide 54The Scenario:Steel Producer1)Located on a river:Low cost transportation and emission disposal(effluent).2)EPA imposes a per unit effluent fee to reduce the environmentally harmful effluent.The Effect o

38、f EffluentFees on Firms Input Choices第54页/共132页Slide 55The Scenario:Steel Producer3)How should the firm respond?The Effect of EffluentFees on Firms Input Choices第55页/共132页Slide 56The Cost-MinimizingResponse to an Effluent FeeWaste Water(gal./month)Capital(machine hours permonth)Output of 2,000Tons o

39、f Steel per MonthA10,00018,00020,000012,000Slope of isocost=-10/40=-0.252,0001,0004,0003,0005,0005,000第56页/共132页Slide 57The Cost-MinimizingResponse to an Effluent FeeOutput of 2,000Tons of Steel per Month2,0001,0004,0003,0005,00010,00018,00020,000012,000Capital(machine hours permonth)E5,0003,500Slop

40、e of isocost=-20/40=-0.50BFollowing the impositionof the effluent fee of$10/gallonthe slope of the isocost changeswhich the higher cost of water tocapital so now combination B is selected.APrior to regulation the firm chooses to produce an output using 10,000 gallons of water and 2,000machine-hours

41、of capital at A.CFWaste Water(gal./month)第57页/共132页Slide 58Observations:The more easily factors can be substituted,the more effective the fee is in reducing the effluent.The greater the degree of substitutes,the less the firm will have to pay(for example:$50,000 with combination B instead of$100,000

42、 with combination A)The Effect of EffluentFees on Firms Input Choices第58页/共132页Slide 59Cost minimization with Varying Output LevelsA firms expansion path shows the minimum cost combinations of labor and capital at each level of output.Cost in the Long Run第59页/共132页Slide 60A Firms Expansion PathLabor

43、 per yearCapitalperyearExpansion PathThe expansion path illustratesthe least-cost combinations oflabor and capital that can be used to produce each level ofoutput in the long-run.25507510015010050150300200A$2000Isocost Line200 UnitIsoquantB$3000 Isocost Line300 Unit IsoquantC第60页/共132页Slide 61A Firm

44、s Long-Run Total Cost CurveOutput,Units/yrCostperYearExpansion Path100010030020020003000DEF第61页/共132页Slide 62Long-Run VersusShort-Run Cost CurvesWhat happens to average costs when both inputs are variable(long run)versus only having one input that is variable(short run)?第62页/共132页Slide 63Long-RunExp

45、ansion PathThe long-run expansionpath is drawn as before.The Inflexibility ofShort-Run ProductionLabor per yearCapitalperyearL2Q2K2DCFEQ1ABL1K1L3PShort-RunExpansion Path第63页/共132页Slide 64Long-Run Average Cost(LAC)Constant Returns to ScaleIf input is doubled,output will double and average cost is con

46、stant at all levels of output.Long-Run VersusShort-Run Cost Curves第64页/共132页Slide 65Long-Run Average Cost(LAC)Increasing Returns to ScaleIf input is doubled,output will more than double and average cost decreases at all levels of output.Long-Run VersusShort-Run Cost Curves第65页/共132页Slide 66Long-Run

47、Average Cost(LAC)Decreasing Returns to ScaleIf input is doubled,the increase in output is less than twice as large and average cost increases with output.Long-Run VersusShort-Run Cost Curves第66页/共132页Slide 67Long-Run Average Cost(LAC)In the long-run:Firms experience increasing and decreasing returns

48、 to scale and therefore long-run average cost is“U”shaped.Long-Run VersusShort-Run Cost Curves第67页/共132页Slide 68Long-Run Average Cost(LAC)Long-run marginal cost leads long-run average cost:If LMC LAC,LAC will riseTherefore,LMC=LAC at the minimum of LACLong-Run VersusShort-Run Cost Curves第68页/共132页Sl

49、ide 69Long-Run Averageand Marginal CostOutputCost($per unitof outputLACLMCA第69页/共132页Slide 70QuestionWhat is the relationship between long-run average cost and long-run marginal cost when long-run average cost is constant?Long-Run VersusShort-Run Cost Curves第70页/共132页Slide 71Economies and Diseconomi

50、es of ScaleEconomies of ScaleIncrease in output is greater than the increase in inputs.Diseconomies of ScaleIncrease in output is less than the increase in inputs.Long-Run VersusShort-Run Cost Curves第71页/共132页Slide 72Measuring Economies of ScaleLong-Run VersusShort-Run Cost Curves第72页/共132页Slide 73M