PowerPoint PresentationSlide 2Slide 3Slide 4Slide 5Slide 6Slide 7Slide 8Slide 9Slide 10Slide 11Slide 12Slide 13Slide 14Slide 15Slide 16Slide 17Slide 18Slide 19Slide 20Slide 21Slide 22Slide 23Slide 24Slide 25Slide 26Slide 27Slide 28Slide 29Slide 30Slide 31Slide 32The Firm and CostOverheadsCosts in the short runTotal cost— everything they must give upin order to produce outputA firm’s total cost of production is theopportunity cost of the ownersExplicit and implicit costsExplicit costs1. purchase of expendable inputs including labor time2. purchase of capital services (usually rent or lease)Implicit costs1. value of produced expendables(feed for a cattle producer)2. value of services provided by owned capital including financial capitalOperating costs and allocated overhead1. Costs of all expendables are often allocated to the generic group OPERATING COSTSOPERATING COSTS 2. All other costs are allocated to the group ALLOCATED OVERHEADALLOCATED OVERHEADData for the hay hauling problemCost of labor per hour = w1 = $6.00Cost of tractor-wagon per hour = w2 = $20.00Total fixed cost (TFC)The cost of all inputs that are fixedin the short run are called total fixed costsAssume that wagons hours is fixed at 1For this example, then TFC = $20.00Fixed Cost Curve 0204060801000 400 800 1200 1600 2000 2400CostOutput - yTFCGraphical representationx1x2 TPP APP A MPP MPP TFC TVC TC AFC AVC ATC AMC MC0.00 1.00 0.00 0.00 20.0 0.00 20.00 Data on hay hauling1.0 1.0 38.0 38.00 38.00 74.0 20.0 6.00 26.00 0.526 0.158 0.684 0.158 0.0812.0 1.0 144.0 72.00 106.00 136.0 20.0 12.00 32.00 0.139 0.083 0.222 0.057 0.0443.0 1.0 306.0 102.00 162.00 186.0 20.0 18.00 38.00 0.065 0.059 0.124 0.037 0.032Fixed cost stays the same -- variable cost is risingx1x2 TPP APP A MPP MPP TFC TVC TC AFC AVC ATC AMC MC0.00 1.00 0.00 0.00 20.0 0.00 20.00 Data on hay hauling1.0 1.0 38.0 38.00 38.00 74.0 20.0 6.00 26.00 0.526 0.158 0.684 0.158 0.0812.0 1.0 144.0 72.00 106.00 136.0 20.0 12.00 32.00 0.139 0.083 0.222 0.057 0.0443.0 1.0 306.0 102.00 162.00 186.0 20.0 18.00 38.00 0.065 0.059 0.124 0.037 0.0324.0 1.0 512.0 128.00 206.00 224.0 20.0 24.00 44.00 0.039 0.047 0.086 0.029 0.0275.0 1.0 750.0 150.00 238.00 250.0 20.0 30.00 50.00 0.027 0.040 0.067 0.025 0.0246.0 1.0 1008.0 168.00 258.00 264.0 20.0 36.00 56.00 0.020 0.036 0.056 0.023 0.0237.0 1.0 1274.0 182.00 266.00 266.0 20.0 42.00 62.00 0.016 0.033 0.049 0.023 0.0238.0 1.0 1536.0 192.00 262.00 256.0 20.0 48.00 68.00 0.013 0.031 0.044 0.023 0.0239.0 1.0 1782.0 198.00 246.00 234.0 20.0 54.00 74.00 0.011 0.030 0.042 0.024 0.02610.0 1.0 2000.0 200.00 218.0 200.0 20.0 60.00 80.0 0.010 0.030 0.040 0.028 0.03011.0 1.0 2178.0 198.00 178.0 154.0 20.0 66.00 86.0 0.009 0.030 0.039 0.034 0.03912.0 1.0 2304.0 192.00 126.0 96.0 20.0 72.00 92.0 0.009 0.031 0.040 0.048 0.06313.0 1.0 2366.0 182.00 62.0 26.0 20.0 78.00 98.0 0.008 0.033 0.041 0.097 0.23114.0 1.0 2352.0 168.00 -14.0 -56.0 20.0 84.00 104.0 0.009 0.036 0.044Total variable cost (TVC)Remember that the cost of all the inputs that are variablein the short run is called total variable costFor our example TVC(38) = $6.00TVC Σn1i 1wixiAnd TVC (306) = $18.00Data on hay haulingx1x2 TPP APP A MPP MPP TFC TVC TC AFC AVC ATC AMC MC0.00 1.00 0.00 0.00 20.0 0.00 20.00 1.0 1.0 38.0 38.00 38.00 74.0 20.0 6.00 26.00 0.526 0.158 0.684 0.158 0.0812.0 1.0 144.0 72.00 106.00 136.0 20.0 12.00 32.00 0.139 0.083 0.222 0.057 0.0443.0 1.0 306.0 102.00 162.00 186.0 20.0 18.00 38.00 0.065 0.059 0.124 0.037 0.032Data on hay haulingx1x2 TPP APP A MPP MPP TFC TVC TC AFC AVC ATC AMC MC0.00 1.00 0.00 0.00 20.0 0.00 20.00 1.0 1.0 38.0 38.00 38.00 74.0 20.0 6.00 26.00 0.526 0.158 0.684 0.158 0.0812.0 1.0 144.0 72.00 106.00 136.0 20.0 12.00 32.00 0.139 0.083 0.222 0.057 0.0443.0 1.0 306.0 102.00 162.00 186.0 20.0 18.00 38.00 0.065 0.059 0.124 0.037 0.0324.0 1.0 512.0 128.00 206.00 224.0 20.0 24.00 44.00 0.039 0.047 0.086 0.029 0.0275.0 1.0 750.0 150.00 238.00 250.0 20.0 30.00 50.00 0.027 0.040 0.067 0.025 0.0246.0 1.0 1008.0 168.00 258.00 264.0 20.0 36.00 56.00 0.020 0.036 0.056 0.023 0.0237.0 1.0 1274.0 182.00 266.00 266.0 20.0 42.00 62.00 0.016 0.033 0.049 0.023 0.0238.0 1.0 1536.0 192.00 262.00 256.0 20.0 48.00 68.00 0.013 0.031 0.044 0.023 0.0239.0 1.0 1782.0 198.00 246.00 234.0 20.0 54.00 74.00 0.011 0.030 0.042 0.024 0.02610.0 1.0 2000.0 200.00 218.0 200.0 20.0 60.00 80.0 0.010 0.030 0.040 0.028 0.03011.0 1.0 2178.0 198.00 178.0 154.0 20.0 66.00 86.0 0.009 0.030 0.039 0.034 0.03912.0 1.0 2304.0 192.00 126.0 96.0 20.0 72.00 92.0 0.009 0.031 0.040 0.048 0.06313.0 1.0 2366.0 182.00 62.0 26.0 20.0 78.00 98.0 0.008 0.033 0.041 0.097 0.23114.0 1.0 2352.0 168.00 -14.0 -56.0 20.0 84.00 104.0 0.009 0.036 0.044Graphical representation of TVCTotal Variable Cost0204060801000 400 800 1200 1600 2000 2400CostOutput - yTVCTotal cost (TC)The cost of all inputs used by the firm is called total costsTC = TFC + TVCTC Σni 1wixiSpecifically, the sum of fixed and variable costs is called total costsCost functionC(y, w, ¯x ) FC(¯x, w) C(y, w)Graphical representation of total cost (TC)Total Cost Curves0204060801000 400 800 1200 1600 2000 2400CostOutput - yTFCTVCTCAverage cost (AC)Average cost is just a total cost figure divided by theassociated output levelAC represents the average per unit costof a given level of outputThere are average costs associated with eachlevel of total costsAverage fixed cost is given by AFC FCyTFCyAverage variable cost is given by AVC VCyTVCyAverage (total) cost is given by ATC AC TCyCyData on hay haulingx1x2 TPP(y) APP A MPP MPP TFC TVC TC AFC AVC ATC AMC MC0.00 1.00 0.00 0.00 20.0 0.00 20.00 1.0 1.0 38.0 38.00 38.00 74.00 20.0 6.00 26.00 0.526 0.158 0.684 0.158 0.0812.0 1.0 144 72.00 106.0 136.0 20.0 12.0 32.0 0.139 0.083 0.222 0.057 0.0443.0 1.0 306.0 102.00 162.00 186.00 20.0 18.00 38.00 0.065 0.059 0.124 0.037 0.0324.0 1.0 512.0 128.00 206.00 224.00 20.0 24.00 44.00 0.039 0.047 0.086 0.029 0.0275.0 1.0 750.0 150.00 238.00 250.00 20.0 30.00 50.00 0.027 0.040 0.067 0.025 0.0246.0 1.0 1008.0 168.00 258.00 264.00 20.0 36.00 56.00 0.020 0.036 0.056 0.023 0.0237.0 1.0 1274.0 182.00 266.00 266.00 20.0 42.00 62.00 0.016 0.033 0.049 0.023 0.0238.0 1.0 1536.0
View Full Document
Unlocking...