Costs of Production

Costs of Production - CostsofProduction Lectures...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
Costs of Production Lectures Supratim Das Gupta
Background image of page 1

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

View Full DocumentRight Arrow Icon
Key Questions to address: What is a production function? What do  we mean by marginal product? What are the various costs of production  and how are they related to each other  and to output? How are costs different in the short run  and the long run? What do we mean by “economies of  scale”?
Background image of page 2
THE COSTS OF  PRODUCTION 3 Total Revenue, Total Cost,  Profit We assume that the firm’s goal is to  maximize profit . Profit   =   Total revenue   –   Total cost the amount a  firm receives  from the sale  of its output the market  value of the  inputs a firm  uses in  production 0
Background image of page 3

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

View Full DocumentRight Arrow Icon
Costs of Production Recall from Chapter 1, one of the  Ten  Principles: Opportunity Cost  of an item is what must be  given up to acquire that item; Firms Cost’s can either be implicit or  explicit: Explicit Costs: input costs that require an  outlay of money by the firm; eg. wages paid  to labor Implicit Costs: costs that do not require a 
Background image of page 4
THE COSTS OF  PRODUCTION 5 Explicit vs. Implicit Costs:  An Example You need $100,000 to start your business.  The interest rate is 5%.  Case 1:  borrow $100,000 explicit cost = $5000 interest on loan Case 2:  use $40,000 of your savings,  borrow the other $60,000 explicit cost = $3000 (5%) interest on the loan implicit cost = $2000 (5%)  foregone  interest  you could have earned on your $40,000. 0
Background image of page 5

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

View Full DocumentRight Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 20

Costs of Production - CostsofProduction Lectures...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online