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Behind The Supply Curve: Inputs and Costs
Behind The Supply Curve: Inputs and Costs
PowerPoint® Slides
by Can Erbil
© 2004 Worth Publishers, all rights reserved
What you will learn in this chapter:
The relationship between quantity of inputs and
quantity of output
Why production is often subject to diminishing
returns to inputs
What the various forms of a firm’s costs are and
how they generate the firm’s marginal and average
cost curves
Why a firm’s costs may differ in the short run
versus the long run
How the firm’s technology of production can
generate economies of scale
2
The Production Function
5
Marginal Product of Labor
The marginal product of an input is the
additional quantity of output that is produced
by using one more unit of that input.
6
Diminishing Returns to an Input
7
Marginal Product of Labor Curve
8
Total Product, Marginal Product, and the
Fixed Input
9
Total Cost Curve for George and Martha’s
Farm
10
From the Production Function to
Cost Curves
11
Total Cost Curve
12
Definition of Marginal Cost
13
Total Cost and Marginal Cost Curves for
Ben’s Boots
14
Average Cost
Average total cost, often referred to simply as
average cost, is total cost divided by quantity
of output produced.
ATC = TC/Q
Average fixed cost is the fixed cost per unit of
output.
AFC = FC/Q
Average variable cost is the variable cost per
unit of output.
AVC = VC/Q
15
Average Total Cost Curve for Ben’s Boots
17
General principles that are always true
about a firm’s marginal and average
total cost curves:
18
The Relationship Between the Average
Total Cost and the Marginal Cost Curves
19
More Realistic Cost Curves
21
Choosing the
Level of Fixed
Cost for Ben’s
Boots
There is a trade-off
between higher
fixed cost and lower
variable cost for
any given output
level, and vice
versa.
But as output goes
up, average total
cost is lower with
the higher amount
of fixed cost.
22
The Long-Run Average Total Cost Curve
23
Short-Run and Long-Run Average
Total Cost Curves
24
Economies and Diseconomies of Scale
25
The End of Chapter 8
coming attraction:
Chapter 9:
Perfect Competition and
the Supply Curve
26