Chapter 8 Note

Chapter 8 Note - Chapter 8 Supply: The Costs of Doing...

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1 Supply: The Costs of Doing Business Microeconomics, Seventh Edition Microeconomics, Seventh Edition Boyes /Melvin Chapter 8 2 Morita’s Cost Curve Akio Morita, founder of Sony Corporation, drew this cost curve for transistor radios. He saw that per-unit costs would fall initially and then rise. He turned down an order for 100,000 units because he thought it would be risky to increase production levels that high. He asked “What if there were no repeat order the next year?” 3 Firms and Production • The number of resources a firm uses and the amount spent on selling activities depends on how much they contribute to the value of the firm. • In general, the more the firm wants to supply the more resources it must have.
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2 4 Output and Resources • Supply is the quantities of output that sellers are willing and able to offer for sale at every price. • To determine how much to supply at any given price, sellers must know how much it costs to supply each quantity. Various Firm Decisions • Decision 1 –Which and how many inputs to employ. • Decision 2 –Which and how many goods to produce. • Other Decisions –Which inputs it should produce and which it should buy from other firms. –How to organize management structure. 6 Decision 1: How much of a single input to employ. What level of inputs does a profit maximizing firm employ ? TPP is the max output produced when successive units of a variable resource are added to fixed amounts of other resources • The firm’s total physical product (TPP) curve –shows how maximum output changes when –the quantity of one input changes while –holding all other input quantities constant .
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7 Total Physical Product (TPP) • The total physical product (TPP) curve or schedule is the relationship between a variable resource and output, for a given quantity of fixed resource(s). Sometimes referred to as total product. • TPP is subject to the law of diminishing marginal returns. 8 The Law of Diminishing Marginal Returns When successive equal amounts of a variable resource are combined with a fixed amount of another resource, marginal increases in output that can be attributed to each additional unit of the variable resource will eventually decline. 9
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This note was uploaded on 04/03/2012 for the course ECON 22060 taught by Professor Sherryl.creswell during the Summer '08 term at Kent State.

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Chapter 8 Note - Chapter 8 Supply: The Costs of Doing...

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