The Cost of Production
Chapter 13
The Law of Supply
Firms are willing to produce and sell a
greater quantity of a good when the price
of the good is higher.
This results in a supply curve that slopes
upward.
The Firm’s Objective
Economists normally assume that the
economic goal of the firm is to maximize
profits.
A Firm’s Profit
Total Revenue
– The amount that the firm receives for the sale
of its output.
Total Cost
– The amount that the firm pays to buy inputs.
Profit is a firm’s total revenue minus its
total cost.
Profit = Total Revenue – Total Cost
Cost as Opportunity cost
A firm’s cost of production includes all the
opportunity costs of making its output of
goods and services.
An important example is the opportunity
cost of the financial capital that has been
invested in the business.
Explicit and Implicit Costs
A firm’s cost of production include
explicit costs and implicit costs.
Explicit costs involve a direct money
outlay for factors of production,
Implicit costs do not involve a direct
money outlay.
Economic Profit Versus
Accounting Profit
Economists measure a firm’s economic profit as
total revenue minus all the opportunity costs
(explicit and implicit).
Accountants measure the accounting profit as
the firm’s total revenue minus only the firm’s
explicit costs,In other words,they ignore the
implicit costs.
When total revenue exceeds both explicit and
implicit costs,the firm earns economic profit.
Economic profit is smaller than accounting profit
Revenue
Total
opportunity
costs
How an Economist
Views a Firm
Explicit
costs
Economic
profit
Implicit
costs
Explicit
costs
Accounting
profit
How an Accountant
Views a Firm
Revenue
Economic Profit Versus
Accounting Profit
Example,EVA as Capital Cost
Traditionally a firm’s performance measure
is centered by accounting profit,just
considering the interest payment for debts
by ignoring the opportunity cost of equity
capital.
Economic Value Added (EVA) includes the
opportunity cost of equity capital,
EVA= net profit after tax –cost of equity capital
Example,Data
从会计报表上看,2002年 1214家中国上市公司平均会计净利润为 6428万元。
用 EVA衡量方法来看,2002年中国上市公司的平均 EVA为 -1564万元。只有 1/3的上市公司 EVA为正数。
（资料来源：“谁创造财富，谁毁灭财富－ 2002年中国上市公司价值创造和毁灭排行榜”,,财经（杂志）,,2003年 11月 05日,83－ 94
页。）
The Production Function
The production function shows the
relationship between quantity of inputs
used to make a good and the quantity of
output of that good.
Cobb-Douglas function
Marginal Product
The marginal product of any input in the
production process is the increase in the
quantity of output obtained from an
additional unit of that input.
Additional input
Additional output=Marginal
product
A Production Function
and Total Cost
N u m b e r o f
W o rk e rs
O u t p u t M a rg i n a l
P ro d u c t o f
L a b o r
C o s t o f
F a c t o ry
C o s t o f
W o rk e rs
T o t a l C o s t o f
I n p u t s
0 0 $30 $0 $30
1 50 50 30 10 40
2 90 40 30 20 50
3 120 30 30 30 60
4 140 20 30 40 70
5 150 10 30 50 80
A Production Function
Quantity of
Output
(cookies
per hour)
150
140
130
120
110
100
90
80
70
60
50
40
30
20
10
Number of Workers Hired0 1 2 3 4 5
Production function
Diminishing Marginal Product
Diminishing marginal product is the
property whereby the marginal product of
an input declines as the quantity of the
input increases,
Example,As more and more workers are
hired at a firm,each additional worker
contributes less and less to production
because the firm has a limited amount of
equipment,
Diminishing Marginal Product
The slope of the production function
measures the marginal product of an
input,such as a worker.
When the marginal product declines,the
production function becomes flatter.
The Total Cost Curve
The relationship between the quantity a
firm can produce and its costs determines
pricing decisions.
The total-cost curve shows this relationship
graphically,
A Production Function
and Total Cost
N u m b e r o f
W o rk e rs
O u t p u t M a rg i n a l
P ro d u c t o f
L a b o r
C o s t o f
F a c t o ry
C o s t o f
W o rk e rs
T o t a l C o s t o f
I n p u t s
0 0 $30 $0 $30
1 50 50 30 10 40
2 90 40 30 20 50
3 120 30 30 30 60
4 140 20 30 40 70
5 150 10 30 50 80
Total-Cost Curve...
Total
Cost
$80
70
60
50
40
30
20
10
Quantity of Output
(cookies per hour)
0 20 40 1401201008060
Total-costcurve
The Various Measures of Cost
Costs of production may be divided into
fixed costs and variable costs.
Fixed costs are those costs that do not vary
with the quantity of output produced.
Variable costs are those costs that do
change as the firm alters the quantity of
output produced.
Family of Total Costs
Total Fixed Costs (TFC)
Total Variable Costs (TVC)
Total Costs (TC)
TC = TFC + TVC
Family of Total Costs
Quantity Total Cost Fixed Cost Variable Cost
0 $ 3.00 $3.00 $ 0.00
1 3.30 3.00 0.30
2 3.80 3.00 0.80
3 4.50 3.00 1.50
4 5.40 3.00 2.40
5 6.50 3.00 3.50
6 7.80 3.00 4.80
7 9.30 3.00 6.30
8 11.00 3.00 8.00
9 12.90 3.00 9.90
10 15.00 3.00 12.00
Average Costs
Average costs can be determined by
dividing the firm’s costs by the quantity of
output produced,
The average cost is the cost of each typical
unit of product,
Family of Average Costs
Average Fixed Costs (AFC)
Average Variable Costs (AVC)
Average Total Costs (ATC)
ATC = AFC + AVC
AFC =
Fix e d c os t
Q ua ntit y
=
FC
Q
AV C =
V a ria ble c os t
Q ua ntit y
=
VC
Q
ATC =
Tota l c os t
Q ua ntit y
=
TC
Q
Fi x d c t
ntity
ri a bl e c t
ntity
l t
ntity
$3.00
Quantity AFC AVC ATC
0 — — —
1 $0.30 $3.30
2 1.50 0.40 1.90
3 1.00 0.50 1.50
4 0.75 0.60 1.35
5 0.60 0.70 1.30
6 0.50 0.80 1.30
7 0.43 0.90 1.33
8 0.38 1.00 1.38
9 0.33 1.10 1.43
10 0.30 1.20 1.50
Family of Average Costs
Marginal cost (MC) measures the amount total
cost rises when the firm increases production by
one unit.
Marginal cost helps answer the following
question:
– How much does it cost to produce an additional unit
of output?
Q
TC=
q u a n t i t y ) in ( C h a n g e
c o s t ) t o t a l in ( C h a n g e
=MC
Marginal Cost
Q u a n t it y T o t a l
C o s t
M a r g in a l
C o s t
Q u a n t it y T o t a l
C o s t
M a r g in a l
C o s t
0 $3,00 —
1 3,30 $0,30 6 $7,80 $1,30
2 3,80 0,50 7 9,30 1,50
3 4,50 0,70 8 11,00 1,70
4 5,40 0,90 9 12,90 1,90
5 6,50 1,10 10 15,00 2,10
Marginal Cost
Total-Cost Curve...
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
0 2 4 6 8 10 12
Quantity of Output
(glasses of lemonade per hour)
To
tal
Co
st
Total-cost
curve
ATC
AVC
MC
Average-Cost and
Marginal-Cost Curves...
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
0 2 4 6 8 10 12
Quantity of Output
(glasses of lemonade per hour)
Co
sts
AFC
Cost Curves and Their Shapes
Marginal cost rises with the amount of
output produced.
– This reflects the property of diminishing
marginal product,
The average total-cost curve is U-shaped.
– At very low levels of output average total cost
is high because fixed cost is spread over only
a few units.
– Average total cost declines as output increases.
– Average total cost starts rising because
average variable cost rises substantially.
Cost Curves and Their Shapes
The bottom of the U-shape occurs at the
quantity that minimizes average total cost,
This quantity is sometimes called the
efficient scale of the firm.
Relationship Between Marginal
Cost and Average Total Cost
Whenever marginal cost is less than average
total cost,average total cost is falling.
Whenever marginal cost is greater than
average total cost,average total cost is rising.
The marginal-cost curve crosses the average-
total-cost curve at the efficient scale,
Efficient scale is the quantity that minimizes
average total cost.
MC
ATC
Relationship Between Marginal
Cost and Average Total Cost
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
0 2 4 6 8 10 12
Quantity of Output
(glasses of lemonade per hour)
Co
st
s
The Various Measures of Cost
It is now time to examine the relationships
that exist between the different measures
of cost.
The Various Measures of Cost
Big Bob’s Bagel Bin
Q u a n t i t y
o f B a g e l s
T o t a l
C o s t
F i x e d
C o s t
V a r i a b l e
C o s t
A v e r a g e
F i x e d
C o s t
A v e r a g e
V a r i a b l e
C o s t
A v e r a g e
T o t a l
C o s t
M a r g i n a l
C o s t
0 $ 2,0 0 $ 2,0 0 $ 0,0 0
1 $ 3,0 0 $ 2,0 0 $ 1,0 0 $ 2,0 0 $ 1,0 0 $ 3,0 0 $ 1,0 0
2 $ 3,8 0 $ 2,0 0 $ 1,8 0 $ 1,0 0 $ 0,9 0 $ 1,9 0 $ 0,8 0
3 $ 4,4 0 $ 2,0 0 $ 2,4 0 $ 0,6 7 $ 0,8 0 $ 1,4 7 $ 0,6 0
4 $ 4,8 0 $ 2,0 0 $ 2,8 0 $ 0,5 0 $ 0,7 0 $ 1,2 0 $ 0,4 0
5 $ 5,2 0 $ 2,0 0 $ 3,2 0 $ 0,4 0 $ 0,6 4 $ 1,0 4 $ 0,4 0
6 $ 5,8 0 $ 2,0 0 $ 3,8 0 $ 0,3 3 $ 0,6 3 $ 0,9 7 $ 0,6 0
7 $ 6,6 0 $ 2,0 0 $ 4,6 0 $ 0,2 9 $ 0,6 6 $ 0,9 4 $ 0,8 0
8 $ 7,6 0 $ 2,0 0 $ 5,6 0 $ 0,2 5 $ 0,7 0 $ 0,9 5 $ 1,0 0
9 $ 8,8 0 $ 2,0 0 $ 6,8 0 $ 0,2 2 $ 0,7 6 $ 0,9 8 $ 1,2 0
10 $ 1 0,2 0 $ 2,0 0 $ 8,2 0 $ 0,2 0 $ 0,8 2 $ 1,0 2 $ 1,4 0
11 $ 1 1,8 0 $ 2,0 0 $ 9,8 0 $ 0,1 8 $ 0,8 9 $ 1,0 7 $ 1,6 0
12 $ 1 3,6 0 $ 2,0 0 $ 1 1,6 0 $ 0,1 7 $ 0,9 7 $ 1,1 3 $ 1,8 0
13 $ 1 5,6 0 $ 2,0 0 $ 1 3,6 0 $ 0,1 5 $ 1,0 5 $ 1,2 0 $ 2,0 0
14 $ 1 7,8 0 $ 2,0 0 $ 1 5,8 0 $ 0,1 4 $ 1,1 3 $ 1,2 7 $ 2,2 0
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
$18.00
$20.00
0 2 4 6 8 10 12 14 16
Quantity of Output
(bagels per hour)
To
tal
C
os
t
Total Cost Curve
Big Bob’s Cost Curves...
AFC
AVC
MC
0
0.5
1
1.5
2
2.5
3
3.5
0 2 4 6 8 10 12 14 16
Quantity of Output
Co
sts
ATC
Big Bob’s Cost Curves...
Three Important Properties
of Cost Curves
Marginal cost eventually rises with the
quantity of output.
The average-total-cost curve is U-shaped.
The marginal-cost curve crosses the
average-total-cost curve at the minimum
of average total cost.
Costs in the Long Run
For many firms,the division of total costs
between fixed and variable costs depends on
the time horizon being considered.
In the short run some costs are fixed.
In the long run fixed costs become variable
costs.
Because many costs are fixed in the short run
but variable in the long run,a firm’s long-run
cost curves differ from its short-run cost
curves.
Quantity of
Cars per Day
0
Average
Total
Cost
ATC in short
run with
small factory
ATC in short
run with
medium factory
ATC in short
run with
large factory
ATC in long run
Average Total Cost
in the Short and Long Runs...
Economies and Diseconomies
of Scale
Economies of scale occur when long-run
average total cost declines as output
increases.
Diseconomies of scale occur when long-
run average total cost rises as output
increases.
Constant returns to scale occur when long-
run average total cost does not vary as
output increases.
Diseconomies
of scale
Quantity of
Cars per Day
0
Average
Total
Cost ATC in long run
Economies
of scale
Constant Returns
to scale
Economies and Diseconomies
of Scale
Summary
The goal of firms is to maximize profit,
which equals total revenue minus total
cost,
When analyzing a firm’s behavior,it is
important to include all the opportunity
costs of production.
Some opportunity costs are explicit while
other opportunity costs are implicit.
Summary
A firm’s costs reflect its production process.
A typical firm’s production function gets
flatter as the quantity of input increases,
displaying the property of diminishing
marginal product.
A firm’s total costs are divided between fixed
and variable costs,Fixed costs don’t vary
with quantities produced; variable costs do.
Summary
Average total cost is total cost divided by
the quantity of output.
Marginal cost is the amount by which total
cost would rise if output were increased
by one unit.
The marginal cost always rises with the
quantity of output.
Summary
The average-total-cost curve is U-shaped.
The marginal-cost curve always crosses
the average-total-cost curve at the
minimum of ATC.
A firm’s costs often depend on the time
horizon being considered.
Exercise #13
Problems and Applications
– #2,#3,#8
经济学可以更有趣
为什么我们不能合法拥枪？
政府禁枪的理由？
Types of firearms owned in the US
经济学可以更有趣
禁枪而治安很好的例子：日本
自由拥枪而治安很好的例子：芬兰
哈佛法律与公共政策杂志研究报告发现，世界上人均枪支最多的七个国家，年谋杀率是十万分之一点二；而人均枪支最少的九个国家中，年谋杀率却是十万分之四点四。
华盛顿地区一九七六年实行严格禁枪后，谋杀率非但未减反而明显增加。
美国,New Hampshire拥枪率特别高，可是治安也很好。
综合各种研究和统计，无法令人信服地证明，私人拥有枪支增多会明显导致谋杀增加。
这个世界很危险
Physicians
(A) The number of physicians in the U.S,is 700,000,
(B) Accidental deaths caused by Physicians per year are
120,000,
(C) Accidental deaths per physician is 0.171,
(Statistics courtesy of U.S,Dept,of Health Human Services)
Guns
(A) The number of gun owners in the U.S,is 80,000,000,
(B) The number of accidental gun deaths per year,all age
groups,is 1,500,
(C) The number of accidental deaths per gun owner is
0.000188,
经济学可以更有趣
这个世界这么危险，为什么单单枪支成了目标？
汽车
吸烟
狗
游泳池
Aids
为什么环保主义者会去袭击穿着皮毛大衣的女性而不去袭击摩托党？
实际上，枪的遭遇是一样的。
Chapter 13
The Law of Supply
Firms are willing to produce and sell a
greater quantity of a good when the price
of the good is higher.
This results in a supply curve that slopes
upward.
The Firm’s Objective
Economists normally assume that the
economic goal of the firm is to maximize
profits.
A Firm’s Profit
Total Revenue
– The amount that the firm receives for the sale
of its output.
Total Cost
– The amount that the firm pays to buy inputs.
Profit is a firm’s total revenue minus its
total cost.
Profit = Total Revenue – Total Cost
Cost as Opportunity cost
A firm’s cost of production includes all the
opportunity costs of making its output of
goods and services.
An important example is the opportunity
cost of the financial capital that has been
invested in the business.
Explicit and Implicit Costs
A firm’s cost of production include
explicit costs and implicit costs.
Explicit costs involve a direct money
outlay for factors of production,
Implicit costs do not involve a direct
money outlay.
Economic Profit Versus
Accounting Profit
Economists measure a firm’s economic profit as
total revenue minus all the opportunity costs
(explicit and implicit).
Accountants measure the accounting profit as
the firm’s total revenue minus only the firm’s
explicit costs,In other words,they ignore the
implicit costs.
When total revenue exceeds both explicit and
implicit costs,the firm earns economic profit.
Economic profit is smaller than accounting profit
Revenue
Total
opportunity
costs
How an Economist
Views a Firm
Explicit
costs
Economic
profit
Implicit
costs
Explicit
costs
Accounting
profit
How an Accountant
Views a Firm
Revenue
Economic Profit Versus
Accounting Profit
Example,EVA as Capital Cost
Traditionally a firm’s performance measure
is centered by accounting profit,just
considering the interest payment for debts
by ignoring the opportunity cost of equity
capital.
Economic Value Added (EVA) includes the
opportunity cost of equity capital,
EVA= net profit after tax –cost of equity capital
Example,Data
从会计报表上看,2002年 1214家中国上市公司平均会计净利润为 6428万元。
用 EVA衡量方法来看,2002年中国上市公司的平均 EVA为 -1564万元。只有 1/3的上市公司 EVA为正数。
（资料来源：“谁创造财富，谁毁灭财富－ 2002年中国上市公司价值创造和毁灭排行榜”,,财经（杂志）,,2003年 11月 05日,83－ 94
页。）
The Production Function
The production function shows the
relationship between quantity of inputs
used to make a good and the quantity of
output of that good.
Cobb-Douglas function
Marginal Product
The marginal product of any input in the
production process is the increase in the
quantity of output obtained from an
additional unit of that input.
Additional input
Additional output=Marginal
product
A Production Function
and Total Cost
N u m b e r o f
W o rk e rs
O u t p u t M a rg i n a l
P ro d u c t o f
L a b o r
C o s t o f
F a c t o ry
C o s t o f
W o rk e rs
T o t a l C o s t o f
I n p u t s
0 0 $30 $0 $30
1 50 50 30 10 40
2 90 40 30 20 50
3 120 30 30 30 60
4 140 20 30 40 70
5 150 10 30 50 80
A Production Function
Quantity of
Output
(cookies
per hour)
150
140
130
120
110
100
90
80
70
60
50
40
30
20
10
Number of Workers Hired0 1 2 3 4 5
Production function
Diminishing Marginal Product
Diminishing marginal product is the
property whereby the marginal product of
an input declines as the quantity of the
input increases,
Example,As more and more workers are
hired at a firm,each additional worker
contributes less and less to production
because the firm has a limited amount of
equipment,
Diminishing Marginal Product
The slope of the production function
measures the marginal product of an
input,such as a worker.
When the marginal product declines,the
production function becomes flatter.
The Total Cost Curve
The relationship between the quantity a
firm can produce and its costs determines
pricing decisions.
The total-cost curve shows this relationship
graphically,
A Production Function
and Total Cost
N u m b e r o f
W o rk e rs
O u t p u t M a rg i n a l
P ro d u c t o f
L a b o r
C o s t o f
F a c t o ry
C o s t o f
W o rk e rs
T o t a l C o s t o f
I n p u t s
0 0 $30 $0 $30
1 50 50 30 10 40
2 90 40 30 20 50
3 120 30 30 30 60
4 140 20 30 40 70
5 150 10 30 50 80
Total-Cost Curve...
Total
Cost
$80
70
60
50
40
30
20
10
Quantity of Output
(cookies per hour)
0 20 40 1401201008060
Total-costcurve
The Various Measures of Cost
Costs of production may be divided into
fixed costs and variable costs.
Fixed costs are those costs that do not vary
with the quantity of output produced.
Variable costs are those costs that do
change as the firm alters the quantity of
output produced.
Family of Total Costs
Total Fixed Costs (TFC)
Total Variable Costs (TVC)
Total Costs (TC)
TC = TFC + TVC
Family of Total Costs
Quantity Total Cost Fixed Cost Variable Cost
0 $ 3.00 $3.00 $ 0.00
1 3.30 3.00 0.30
2 3.80 3.00 0.80
3 4.50 3.00 1.50
4 5.40 3.00 2.40
5 6.50 3.00 3.50
6 7.80 3.00 4.80
7 9.30 3.00 6.30
8 11.00 3.00 8.00
9 12.90 3.00 9.90
10 15.00 3.00 12.00
Average Costs
Average costs can be determined by
dividing the firm’s costs by the quantity of
output produced,
The average cost is the cost of each typical
unit of product,
Family of Average Costs
Average Fixed Costs (AFC)
Average Variable Costs (AVC)
Average Total Costs (ATC)
ATC = AFC + AVC
AFC =
Fix e d c os t
Q ua ntit y
=
FC
Q
AV C =
V a ria ble c os t
Q ua ntit y
=
VC
Q
ATC =
Tota l c os t
Q ua ntit y
=
TC
Q
Fi x d c t
ntity
ri a bl e c t
ntity
l t
ntity
$3.00
Quantity AFC AVC ATC
0 — — —
1 $0.30 $3.30
2 1.50 0.40 1.90
3 1.00 0.50 1.50
4 0.75 0.60 1.35
5 0.60 0.70 1.30
6 0.50 0.80 1.30
7 0.43 0.90 1.33
8 0.38 1.00 1.38
9 0.33 1.10 1.43
10 0.30 1.20 1.50
Family of Average Costs
Marginal cost (MC) measures the amount total
cost rises when the firm increases production by
one unit.
Marginal cost helps answer the following
question:
– How much does it cost to produce an additional unit
of output?
Q
TC=
q u a n t i t y ) in ( C h a n g e
c o s t ) t o t a l in ( C h a n g e
=MC
Marginal Cost
Q u a n t it y T o t a l
C o s t
M a r g in a l
C o s t
Q u a n t it y T o t a l
C o s t
M a r g in a l
C o s t
0 $3,00 —
1 3,30 $0,30 6 $7,80 $1,30
2 3,80 0,50 7 9,30 1,50
3 4,50 0,70 8 11,00 1,70
4 5,40 0,90 9 12,90 1,90
5 6,50 1,10 10 15,00 2,10
Marginal Cost
Total-Cost Curve...
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
0 2 4 6 8 10 12
Quantity of Output
(glasses of lemonade per hour)
To
tal
Co
st
Total-cost
curve
ATC
AVC
MC
Average-Cost and
Marginal-Cost Curves...
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
0 2 4 6 8 10 12
Quantity of Output
(glasses of lemonade per hour)
Co
sts
AFC
Cost Curves and Their Shapes
Marginal cost rises with the amount of
output produced.
– This reflects the property of diminishing
marginal product,
The average total-cost curve is U-shaped.
– At very low levels of output average total cost
is high because fixed cost is spread over only
a few units.
– Average total cost declines as output increases.
– Average total cost starts rising because
average variable cost rises substantially.
Cost Curves and Their Shapes
The bottom of the U-shape occurs at the
quantity that minimizes average total cost,
This quantity is sometimes called the
efficient scale of the firm.
Relationship Between Marginal
Cost and Average Total Cost
Whenever marginal cost is less than average
total cost,average total cost is falling.
Whenever marginal cost is greater than
average total cost,average total cost is rising.
The marginal-cost curve crosses the average-
total-cost curve at the efficient scale,
Efficient scale is the quantity that minimizes
average total cost.
MC
ATC
Relationship Between Marginal
Cost and Average Total Cost
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
0 2 4 6 8 10 12
Quantity of Output
(glasses of lemonade per hour)
Co
st
s
The Various Measures of Cost
It is now time to examine the relationships
that exist between the different measures
of cost.
The Various Measures of Cost
Big Bob’s Bagel Bin
Q u a n t i t y
o f B a g e l s
T o t a l
C o s t
F i x e d
C o s t
V a r i a b l e
C o s t
A v e r a g e
F i x e d
C o s t
A v e r a g e
V a r i a b l e
C o s t
A v e r a g e
T o t a l
C o s t
M a r g i n a l
C o s t
0 $ 2,0 0 $ 2,0 0 $ 0,0 0
1 $ 3,0 0 $ 2,0 0 $ 1,0 0 $ 2,0 0 $ 1,0 0 $ 3,0 0 $ 1,0 0
2 $ 3,8 0 $ 2,0 0 $ 1,8 0 $ 1,0 0 $ 0,9 0 $ 1,9 0 $ 0,8 0
3 $ 4,4 0 $ 2,0 0 $ 2,4 0 $ 0,6 7 $ 0,8 0 $ 1,4 7 $ 0,6 0
4 $ 4,8 0 $ 2,0 0 $ 2,8 0 $ 0,5 0 $ 0,7 0 $ 1,2 0 $ 0,4 0
5 $ 5,2 0 $ 2,0 0 $ 3,2 0 $ 0,4 0 $ 0,6 4 $ 1,0 4 $ 0,4 0
6 $ 5,8 0 $ 2,0 0 $ 3,8 0 $ 0,3 3 $ 0,6 3 $ 0,9 7 $ 0,6 0
7 $ 6,6 0 $ 2,0 0 $ 4,6 0 $ 0,2 9 $ 0,6 6 $ 0,9 4 $ 0,8 0
8 $ 7,6 0 $ 2,0 0 $ 5,6 0 $ 0,2 5 $ 0,7 0 $ 0,9 5 $ 1,0 0
9 $ 8,8 0 $ 2,0 0 $ 6,8 0 $ 0,2 2 $ 0,7 6 $ 0,9 8 $ 1,2 0
10 $ 1 0,2 0 $ 2,0 0 $ 8,2 0 $ 0,2 0 $ 0,8 2 $ 1,0 2 $ 1,4 0
11 $ 1 1,8 0 $ 2,0 0 $ 9,8 0 $ 0,1 8 $ 0,8 9 $ 1,0 7 $ 1,6 0
12 $ 1 3,6 0 $ 2,0 0 $ 1 1,6 0 $ 0,1 7 $ 0,9 7 $ 1,1 3 $ 1,8 0
13 $ 1 5,6 0 $ 2,0 0 $ 1 3,6 0 $ 0,1 5 $ 1,0 5 $ 1,2 0 $ 2,0 0
14 $ 1 7,8 0 $ 2,0 0 $ 1 5,8 0 $ 0,1 4 $ 1,1 3 $ 1,2 7 $ 2,2 0
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
$18.00
$20.00
0 2 4 6 8 10 12 14 16
Quantity of Output
(bagels per hour)
To
tal
C
os
t
Total Cost Curve
Big Bob’s Cost Curves...
AFC
AVC
MC
0
0.5
1
1.5
2
2.5
3
3.5
0 2 4 6 8 10 12 14 16
Quantity of Output
Co
sts
ATC
Big Bob’s Cost Curves...
Three Important Properties
of Cost Curves
Marginal cost eventually rises with the
quantity of output.
The average-total-cost curve is U-shaped.
The marginal-cost curve crosses the
average-total-cost curve at the minimum
of average total cost.
Costs in the Long Run
For many firms,the division of total costs
between fixed and variable costs depends on
the time horizon being considered.
In the short run some costs are fixed.
In the long run fixed costs become variable
costs.
Because many costs are fixed in the short run
but variable in the long run,a firm’s long-run
cost curves differ from its short-run cost
curves.
Quantity of
Cars per Day
0
Average
Total
Cost
ATC in short
run with
small factory
ATC in short
run with
medium factory
ATC in short
run with
large factory
ATC in long run
Average Total Cost
in the Short and Long Runs...
Economies and Diseconomies
of Scale
Economies of scale occur when long-run
average total cost declines as output
increases.
Diseconomies of scale occur when long-
run average total cost rises as output
increases.
Constant returns to scale occur when long-
run average total cost does not vary as
output increases.
Diseconomies
of scale
Quantity of
Cars per Day
0
Average
Total
Cost ATC in long run
Economies
of scale
Constant Returns
to scale
Economies and Diseconomies
of Scale
Summary
The goal of firms is to maximize profit,
which equals total revenue minus total
cost,
When analyzing a firm’s behavior,it is
important to include all the opportunity
costs of production.
Some opportunity costs are explicit while
other opportunity costs are implicit.
Summary
A firm’s costs reflect its production process.
A typical firm’s production function gets
flatter as the quantity of input increases,
displaying the property of diminishing
marginal product.
A firm’s total costs are divided between fixed
and variable costs,Fixed costs don’t vary
with quantities produced; variable costs do.
Summary
Average total cost is total cost divided by
the quantity of output.
Marginal cost is the amount by which total
cost would rise if output were increased
by one unit.
The marginal cost always rises with the
quantity of output.
Summary
The average-total-cost curve is U-shaped.
The marginal-cost curve always crosses
the average-total-cost curve at the
minimum of ATC.
A firm’s costs often depend on the time
horizon being considered.
Exercise #13
Problems and Applications
– #2,#3,#8
经济学可以更有趣
为什么我们不能合法拥枪？
政府禁枪的理由？
Types of firearms owned in the US
经济学可以更有趣
禁枪而治安很好的例子：日本
自由拥枪而治安很好的例子：芬兰
哈佛法律与公共政策杂志研究报告发现，世界上人均枪支最多的七个国家，年谋杀率是十万分之一点二；而人均枪支最少的九个国家中，年谋杀率却是十万分之四点四。
华盛顿地区一九七六年实行严格禁枪后，谋杀率非但未减反而明显增加。
美国,New Hampshire拥枪率特别高，可是治安也很好。
综合各种研究和统计，无法令人信服地证明，私人拥有枪支增多会明显导致谋杀增加。
这个世界很危险
Physicians
(A) The number of physicians in the U.S,is 700,000,
(B) Accidental deaths caused by Physicians per year are
120,000,
(C) Accidental deaths per physician is 0.171,
(Statistics courtesy of U.S,Dept,of Health Human Services)
Guns
(A) The number of gun owners in the U.S,is 80,000,000,
(B) The number of accidental gun deaths per year,all age
groups,is 1,500,
(C) The number of accidental deaths per gun owner is
0.000188,
经济学可以更有趣
这个世界这么危险，为什么单单枪支成了目标？
汽车
吸烟
狗
游泳池
Aids
为什么环保主义者会去袭击穿着皮毛大衣的女性而不去袭击摩托党？
实际上，枪的遭遇是一样的。
