1103week 7productionandcost2_2010课件.ppt

Objectives After studying this chapter, you will be able to: Distinguish between explicit and implicit cost Distinguish between accounting and economic profit Define short run and long run Highlight the concept of diminishing marginal returns (DMR) Explain how DMR affects the shape of the short run cost curves Calculate and graph the different short run costs Highlight the relationship between marginal and average cost Derive the long-run average cost curve Explain the relationship between the long run cost curves and economies/diseconomies of scale The Firm and Its Economic Problem The firm’s goal A firm is an institution that hires factors of production and organises them to produce and sell goods and services. A firm’s goal is to maximise profit. If the firm fails to maximise profit it is either eliminated or bought out by other firms seeking to maximise profit. Short and Long Run Short run a period of time where at least one factor is fixed Long run a time period where all factors can be varied Total and Marginal Product Total product (TP) is the total output of a good produced by a firm Marginal product is the extra product that results from adding an extra unit of variable resource Marginal Product of Labour The change in production due to a one-unit increase in labour input. MPL = DQ / DL Increasing Marginal Product of Labour Each additional labour unit is producing more than the previous labour unit. Decreasing Marginal Product of Labour Each additional labour unit is producing less than the previous labour unit. Law of diminishing returns Law of diminishing returns As a firm uses more of a variable input (ie. labour), with a given quantity of fixed inputs, the marginal product of the variable input eventually diminishes Law of diminishing returns Increasing marginal returns occur when the marginal product of an additional worker exceeds the marginal product of the previous worker. In this case the firm is experiencing incr