ECON 110 Lecture 17 Outline of Last Lecture I. Test ReviewII. Production Processa. Production Costsb. Marginal CostsOutline of Current Lecture I. Clicker QuestionII. The Production FunctionIII. Timea. The Short Runb. The Long RunIV. Producta. Total Productb. Marginal Productc. Average ProductV. Production Costsa. Explicit Costsb. Implicit CostsCurrent Lecture – The Production ProcessClicker question:Which of the following is not an implicit cost?A. The cost of an owner's time in running her businessB. The cost of the use of a building, which is owned by the owner, to operate a business out ofC. The cost of the pickup truck, owned by the owner, to transport the workers to a job siteD. The cost of a computer system leased by the owner to do the firm's accountingAnswer: D-- This is the only answer which has an actual exchange of money. The others have the phrase "owned by the owner," meaning nothing is being bought, and the first answer is about an exchange of time, which is also not direct revenue. These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.NOTE: Opportunity costs is not synonymous with implicit costs because opportunity costs include explicit costs as well.LectureThe production function is a mathematical and graphical way of representing the variables that affect the production process, and is represented by Q = f (K,L) Where K = Capital: non-human productive resources L = Labor: human resources Time is a key element in the process, which affects the ability of the firm to control its decisions - The short run: a period in which at least one or more of the inputs used cannot be changed.- In the short run we can consider two types of Inputso Fixed inputs Imply fixed costs Firms cannot adjust these inputs Changes in output have to be made using the amounts that the firm has of this output.o Variable inputs Imply variable costs Firms have control over these Firms can adjust the quantity used in the production process- The long run: a period in which all of the inputs used in the production can be changed.- NOTE: we cannot measure these runs in calendar time. Total product: measure of the production function--how much output you can get from the inputs.Marginal product: How much extra output do you get from an additional unit of the (variable) input.- Marginal Product (MP) = ∆Q/∆L (Change in output/change in labor used)- Law of Diminishing Marginal Product: As you continue to add units to the amounts of input, you will actually decrease your marginal product. Average Product: output per unit; total output per worker (or per hour)Average Product = Q/L (Quantity of output/quantity of labor)Production costs are all of the opportunity costs faces by the owners of the firm i.e. all they must forego to produce their output.Two basic types of costs: 1. Explicit costs: actual payments made to others who supply inputs to the firm. 2. Implicit costs: (opportunity) costs faced by owners who must forego some payment or
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