【正文】 o another use ?Expenditure on the equipment is a sunk cost ?Has no alternative use so cost cannot be recovered – opportunity cost is zero ?Decision to buy the equipment might have been good or bad, but now does not matter 169。2020 Pearson Education, Inc. Chapter 7 16 Fixed and Variable Costs ?Total output is a function of variable inputs and fixed inputs ?Therefore, the total cost of production equals the fixed cost (the cost of the fixed inputs) plus the variable cost (the cost of the variable inputs), or… V C FC TC ??169。2020 Pearson Education, Inc. Chapter 7 20 Marginal and Average Cost ?In pleting a discussion of costs, must also distinguish between ?Average Cost ?Marginal Cost ?After definition of costs is plete, one can consider the analysis between shortrun and longrun costs 169。2020 Pearson Education, Inc. Chapter 7 24 A Firm’s Short Run Costs 169。2020 Pearson Education, Inc. Chapter 7 28 Determinants of Short Run Costs – An Example ?Remembering that L MP L ???? QLMP1QL Quni t 1 afor L????????And rearranging 169。2020 Pearson Education, Inc. Chapter 7 32 Cost Curves for a Firm Output Cost ($ per year) 100 200 300 400 0 1 2 3 4 5 6 7 8 9 10 11 12 13 VC Variable cost increases with production and the rate varies with increasing and decreasing returns. TC Total cost is the vertical sum of FC and VC. FC 50 Fixed cost does not vary with output 169。2020 Pearson Education, Inc. Chapter 7 36 Cost in the Long Run ?In the long run a firm can change all of its inputs ?In making cost minimizing choices, must look at the cost of using capital and labor in production decisions 169。2020 Pearson Education, Inc. Chapter 7 40 Cost in the Long Run ?User Cost of Capital = Economic Depreciation + (Interest Rate)*(Value of Capital) ?= $5 mil + (.10)($150 mil – depreciation) ?Year 1 = $5 million + (.10)($150 million) = $20 million ?Year 10 = $5 million +(.10)($100 million) = $15 million 169。 K that can be purchased for the same cost ?Total cost of production is sum of firm’s labor cost, wL, and its capital cost, rK: C = wL + rK ?For each different level of cost, the equation shows another isocost line 169。2020 Pearson Education, Inc. Chapter 7 47 Input Substitution When an Input Price Change ?If the price of labor changes, then the slope of the isocost line changes, (w/r) ?It now takes a new quantity of labor and capital to produce the output ?If price of labor increases relative to price of capital, and capital is substituted for labor 169。2020 Pearson Education, Inc. Chapter 7 51 Cost in the Long Run ?If w = $10, r = $2, and MPL = MPK, which input would the producer use more of? ?Labor because it is cheaper ?Increasing labor lowers MPL ?Decreasing capital raises MPK ?Substitute labor for capital until rMPwMP KL ?169。2020 Pearson Education, Inc. Chapter 7 55 A Firm’s Long Run Total Cost Curve Long Run Total Cost Output, Units/yr 100 300 200 Cost/ Year 1000 2020 3000 D E F 169。2020 Pearson Education, Inc. Chapter 7 59 Long Run Versus Short Run Cost Curves 2. Increasing Returns to Scale ? If input is doubled, output will more than double ? AC decreases at all levels of output 3. Decreasing Returns to Scale ? If input is doubled, output will less than double ? AC increases at all levels of output 169。2020 Pearson Education, Inc. Chapter 7 63 Long Run Costs ? As output increases, firm’s AC of producing is likely to decline to a point 1. On a larger scale, workers can better specialize 2. Scale can provide flexibility – managers can anize production more effectively 3. Firm may be able to get inputs at lower cost if can get quantity discounts. Lower prices might lead to different input mix. 169。2020 Pearson Education, Inc. Chapter 7 67 Long Run Costs ?Increasing Returns to Scale ?Output more than doubles when the quantities of all inputs are doubled ?Economies of Scale ?Doubling of output requires less than a doubling of cost 169。2020 Pearson Education, Inc. Chapter 7 71 Long Run Cost with Constant Returns to Scale ?The optimal plant size will depend on the anticipated output ?If expect to produce q0, then should build smallest plant: AC = $8 ?If produce more, like q1, AC rises ?If expect to produce q2, middle plant is least cost ?If expect to produce q3, largest plant is best 169。2020 Pearson Education, Inc. Chapter 7 75 Production with Two Outputs – Economies of Scope ?Many firms produce more than one product and those products are closely linked ?Examples: ?Chicken farmpoultry and eggs ?Automobile panycars and trucks ?Universityteaching and research 169。 K. O2 O1 169。2020 Pearson Education, Inc. Chapter 7 82 Production with Two Outputs – Economies of Scope ?With economies of scope, the joint cost is less than the sum of the individual costs ?Interpretation: ?If SC 0 ? Economies of scope ?If SC 0 ? Diseconomies of scope ?The greater the value of SC, the greater the economies of scope 169。2020 Pearson Education, Inc. Chapter 7 85 Dynamic Changes in Costs – The Learning Curve ?The learning curve measures the impact of workers’ experience on the costs of production ?It describes the relationship between a firm’s cumulative output and the amount of inputs needed to produce a unit of output 169。 ABA,LN??169。2020 Pearson Education, Inc. Chapter 7 92 Dynamic Changes in Costs – The Learning Curve ? Observations 1. New firms may experience a learning curve, not economies of scale ? Should increase production of many lots regardless of individual lot size 2. Older firms have relatively small gains from learning ? Should produce their machines in very large lots to take advantage of lower costs associated with size 169