Week 6 Costs and the behaviour of firms

Week 6 Costs and the behaviour of firms - Costs and the...

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1 Costs and the Behaviour of Firms (TF Chapter 8)
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2 The story so far… Demand Supply Consumer preferences and wealth Costs Firm objectives Price and quantity Government policy Market structure
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3 Today’s Agenda Technological and economic efficiency Production functions: relating inputs to output Cost functions: relating costs to output Costs in the short and long run Profit and loss Economies of scale
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4 Technology and Economic Efficiency Technological efficiency Occurs when it is not possible to increase output without increasing inputs Firm uses a given set of inputs efficiently Economic efficiency Occurs when the cost of producing a given output is as low as possible The firm is using a given set of inputs efficiently AND the firm chooses the most efficient mix of inputs
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5 Technological and Economic Efficiency Quantities of inputs Method Labor Capital 1 Robot production 1 1,000 2 Production line 10 10 3 Bench production 100 10 4 Hand-tool production 1,000 1 Suppose there are 4 different ways of making 10 TVs a day Technologically Inefficient
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6 Technological and Economic Efficiency (a)Four ways of making TVs: Labour cost Capital cost Method ($75 per day) ($250 per day) Total cost Cost per TV set 1 $75 + $250,000 = $250,075 $25,007.50 2 750 + 2,500 = 3,250 325.00 3 7,500 + 2,500 = 10,000 1,000.00 4 75,000 + 250 = 75,250 7,525.00
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7 Technological and Economic Efficiency (b) Three ways of making TVs: High Labor Costs Labour cost Capital cost Method ($ 150 per day) ($ 1 per day) Total cost Cost per TV set 1 $150 + $1,000 = $1,150 $115.00 2 1,500 + 10 = 1,510 151.00 4 150,000 + 1 = 150,001 15,000.10
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8 (c) Three ways of making TVs: High Capital Costs Labor cost Capital cost Method ($ 1 per day) ($ 1,000 per day) Total cost Cost per TV set 1 $1 + $1,000,000 = $1,000,001 $100,000.10 2 10 + 10,000 = 10,010 1,001.00 4 1,000 + 1,000 = 2,000 200.00 Technological and Economic Efficiency
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This note was uploaded on 08/18/2011 for the course ECON 1001 taught by Professor - during the Three '07 term at University of Sydney.

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Week 6 Costs and the behaviour of firms - Costs and the...

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