{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Ch. 11 Output and Costs

# The behaviour of long run cost depends on the firms

This preview shows page 1. Sign up to view the full content.

This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: uses the economically efficient quantities of labour and capital. The behaviour of long-run cost depends on the firm’s production function. The production function is the relationship between the maximum output attainable and the quantities of both labour and capital. The Production Function The Output (pizza per day) 1 Oven 2 Oven 3 Oven 4 Oven Labour 1 2 3 4 5 Marginal product of labour decreasing 4 10 13 15 16 10 15 18 20 21 13 18 22 24 25 15 21 24 26 27 Marginal product of capital decreasing Average Costs per Pizza Average Pizzas 4 10 13 15 16 20 25 1 oven \$12.50 \$7.50 \$7.69 \$8.33 \$9.38 ----- 2 ovens \$15.00 \$7.50 \$6.92 \$6.67 \$6.77 \$7.50 --- 3 ovens \$20.67 \$9.42 \$7.69 \$7.33 \$7.19 \$6.88 \$8.00 4 ovens \$26.67 \$11.67 \$9.36 \$8.33 \$8.07 \$7.29 \$7.50 Short-Run Costs of Four Different Plants Different 12.00 ATC1 10.00 9.36 ATC2 ATC3 ATC4 8.00 7.69 6.92 6.00 0 5 10 13 15 20 25 30 Long-Run Average Cost Long-Run Curve Curve 12.00 12.00 ATC1 10.00 ATC2 ATC3 ATC4 8.00 6.00 0 Least-cost plant is 1 LRAC curve Least-cost plant is 2 5 10 15 Least-cost plant is 3 18 20 Least-cost plant is 4 2425 30 Returns to Scale Returns Returns to scale are the increases in output that result from increasing all inpu...
View Full Document

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern