Chapter 7 - Production Inputs and Cost

# Chapter 7 - Production Inputs and Cost - Chapter 7...

This preview shows pages 1–15. Sign up to view the full content.

Chapter 7 Production, Inputs, and Cost: Building Blocks for Supply Analysis Of course, that’s only an estimate. The actual cost will be higher. AUTO MECHANI C TO CUSTOMER

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Historical costs for long-distance telephone transmissions Figure 1 2
Short-Run vs. Long-Run Costs Run Period of time Short run Some cost commitments – not ended Predetermined Plant size Most input quantities 3

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Short-Run vs. Long-Run Costs Long run All cost commitments – ended Adjustable Plant size Inputs 4
Short-Run vs. Long-Run Costs Fixed cost Quantity of input Doesn’t vary with output Cost of input Doesn’t vary with output Variable cost Varies with output 5

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Short run Only one variable input Total physical product (TPP) Total amount of output From a given quantity of input 6
Total physical product schedule for Al’s building company Table 1 7 (1) (2) Number of Carpenters Total Product (Garages per Year) 0 1 2 3 4 5 6 0 4 12 24 32 35 30

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
TPP Total physical product with different quantities of carpenters used by Al’s firm Figure 2 8 1 2 3 0 4 5 Quantity of Carpenters per Year 6 7 5 10 Total Output in Garages per Year 40 15 20 25 30 35 32 G F E D C B A
Average physical product (APP) Total physical product (TPP) Divided by quantity of input (X) APP=TPP/X Marginal physical product (MPP) Increase in total output From: one-unit increase in input All other inputs constant 9

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Al’s product schedules: total, average, and marginal physical product and marginal revenue product Table 2 10 (1) (2) (3) (4) (5) Number of Carpenters Total Physical Product (Garages per year) Marginal Physical Product (Garages per added carpenter) Marginal Revenue Product (Thousands of \$ per year per added carpenter) Average Physical Product (Garages per year) 0 1 2 3 4 5 6 0 4 12 24 32 35 30 0 4 6 8 8 7 5 4 8 12 8 3 -5 \$60 120 180 120 45 -75
MPP curve Rate of change: TPP curve Equals slope of TPP curve Increasing marginal returns MPP – increases TPP – increases Increasing rate 11

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Diminishing marginal returns MPP – decreases; positive TPP – increases Decreasing rate Negative marginal returns MPP – negative TPP – decreases 12
Al’s marginal physical product (MPP) curve Figure 3 13 -6 -2 MPP in Garages per Year 10 12 2 4 6 0 8 -4 14 1 2 3 0 4 5 Number of Carpenters 6 7 MPP Increasing marginal returns Diminishing marginal returns Negative marginal returns

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
“Law” of diminishing marginal returns
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 51

Chapter 7 - Production Inputs and Cost - Chapter 7...

This preview shows document pages 1 - 15. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online