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Economic vs. Accounting Cost Short-Run vs. Long-Run Decisions Opportunity Cost 8 Behind the Supply Curve: Inputs and Costs.

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Presentation on theme: "Economic vs. Accounting Cost Short-Run vs. Long-Run Decisions Opportunity Cost 8 Behind the Supply Curve: Inputs and Costs."— Presentation transcript:

1 Economic vs. Accounting Cost Short-Run vs. Long-Run Decisions Opportunity Cost 8 Behind the Supply Curve: Inputs and Costs

2 Total Product Curve Number of Workers Output per minute 246810 50 100 150 200 250 300 350 400 Increasing productivity: specialization Decreasing productivity: diminishing returns

3 1234567 No. of workers Marginal Product 10 20 30 40 50 60 70 80 90 1 2 3 0 4 0 65 150 220 270 Total Product Marginal Product 5295 Marginal Product Curve

4 0 65 150 220 270 Output 0 1 2 3 4 Labor $15 Fixed Cost Ingred Cost Labor Cost 2955$15 Total Cost Total Cost Curve 2¢/cookie $7/hour

5 0 65 150 220 270 Output 295 Total Cost $15.00 $23.30 $32.00 $40.40 $48.40 $55.90 Number of cookies Cost ($) 80160240320400 10 20 30 40 50 60 70 80 Total Cost Curve

6 Number of cookies Cost ($) 80160240320400 10 20 30 40 50 60 70 80 Short-Run Total Cost Curve Diminishing returns: costs increase more rapidly Fixed cost Variable cost Total cost

7 Output Cost ($) 246810 20 40 60 80 100 120 140 160 Total cost Calculating Average (AC) & Marginal (MC) Cost 44 48 84 101 2 Units MC = AC = 8 Units MC = AC =

8 0 65 150 220 270 OutputATCAVCMC 295 Total Cost $15.00 $23.30 $32.00 $40.40 $48.40 $55.90 Marginal and Average Costs

9 Cookies Aver / Marg Cost ($) 80160240320400.10.12.14.16.18.20.22.24.26.28.30 Marginal and Average Cost Curves

10 160320480640800960.10.20.30.40 ATC (2 ovens) ATC (4 ovens) ATC (6 ovens) ATC (8 ovens) Short-run and Long-run Average Costs  In the long run, the firm can adjust capacity.

11 Output Cost ($) 48121620 5 10 15 20 25 30 35 40 Short-run and Long-run Average Costs Indivisible inputs: minimum level of fixed costs. Economies of scale specialization indivisible inputs more productive equip. buying power Minimum efficient scale

12 Long-Run Cost Curves: Military Hospitals

13 Pharmacy47% Anesthesiology14% Pathology14% Radiology10% Intensive Care6%


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