2. 1 © ©1999 South-Western College Publishing PowerPoint Slides prepared by Ken Long Principles of Economics 2nd edition by Fred M Gottheil

3. 2 Chapter 8 Costs of Production 2/22/2016 © ©1999 South-Western College Publishing

4. 3 This chapter discusses principles associated with Short and Long Run considerations Economies of Scale The Law of Diminishing Returns CostsEntrepreneurship © ©1999 South-Western College Publishing The Socioeconomic Environment

5. 4 What is a Fixed Cost? Cost to a firm that does not vary with the quantity of goods produced © ©1999 South-Western College Publishing

6. 5 What are examples of Fixed Costs? rent or mortgage loan payments a part of utilities © ©1999 South-Western College Publishing

7. 6 What are some other names for Fixed Cost? Sunk and Historical © ©1999 South-Western College Publishing

8. 7 What is a Variable Cost? Cost that varies with the quantity of goods produced © ©1999 South-Western College Publishing

9. 8 What are examples of Variable Costs? worker’s wages raw materials some utilities some taxes © ©1999 South-Western College Publishing

10. 9 What is Labor Productivity? The output per laborer per hour © ©1999 South-Western College Publishing

11. 10 Under what condition is it cheaper to pay $10 an hr. to a U.S. worker than $1 an hour to a foreign worker? © ©1999 South-Western College Publishing

12. 11 © ©1999 South-Western College Publishing If the U.S. worker is more than 10 times as productive as the foreign worker

13. 12 Why do labor costs increase as more units of labor are hired? Price of labor increases Quality of labor decreases Labor productivity decreases © ©1999 South-Western College Publishing

14. 13 Why do non-labor, variable costs increase as output increases? Resources become more scarce © ©1999 South-Western College Publishing

15. 14 Does the cost of all resources increase more than production increases? No, the costs of some resources may vary proportionately with the level of production © ©1999 South-Western College Publishing

16. 15 What is Total Variable Cost? The sum of specific variable costs in the firm’s cost structure © ©1999 South-Western College Publishing

17. 16 16 © ©1999 South-Western College Publishing Total Variable Costs $ Q

18. 17 What are Total Costs? Cost to the firm that includes both fixed and variable costs © ©1999 South-Western College Publishing

19. 18 18 © ©1999 South-Western College Publishing Total Costs $ Q TFC TC TVC

20. 19 What is Average Total Cost? Total cost divided by the quantity of goods produced © ©1999 South-Western College Publishing

21. 20 What is Average Fixed Cost? Total fixed cost divided by the quantity of goods produced © ©1999 South-Western College Publishing

22. 21 What is Average Variable Cost? Total variable cost divided by the quantity of goods produced © ©1999 South-Western College Publishing

23. 22 Quantity ATC AVC Avg. Fixed Costs 22 Costs

24. 23 What is Marginal Cost? The change in total cost generated by a change in the quantity of a good produced © ©1999 South-Western College Publishing

25. 24 24 © ©1999 South-Western College Publishing MC = Q TC

26. 25 Why does MC = ATC at minimum ATC? If the marginal is above the average, the average increases If the marginal is below the average, the average decreases © ©1999 South-Western College Publishing

27. 26 Costs Quantity ATC AVC MC Avg. Fixed Costs 26

28. 27 What is the Short Run? A time in which producers can change some, but not all of its resources © ©1999 South-Western College Publishing

29. 28 What is the Long Run? The time in which producers can change quantity of all resources © ©1999 South-Western College Publishing

30. 29 What are Economies of Scale? When a firm increases resources in the long run and ATC decreases © ©1999 South-Western College Publishing

31. 30 What are Diseconomies of Scale? When a company increases resources in the long run and ATC increases © ©1999 South-Western College Publishing

32. 31 What are different views concerning downsizing? http://www.visioncoach.com © ©1999 South-Western College Publishing

33. 32 Are cost structures Culture-bound? Yes, the social and economic environment is as important a factor as the factors of production © ©1999 South-Western College Publishing

34. 33 What is a Fixed Cost? What is a Variable Cost? What are Total Costs? What is Marginal Cost? What is the Short Run? What is the Long Run? What are Economies of Scale? What are Diseconomies of Scale?

35. 34 ENDEND © ©1999 South-Western College Publishing