郑重声明此课件只能用于同学自己学习参考，未经书面授权不得做其他用途，尤其是不得做商业用途，也不得作为教学课件使用（对他人授课）。课件作者Chapter 6 ProductionChapter 7 CostTechnological relationship on supply side of marketInputs -Outputs Outputs varies with inputs-production theory (chapter 6)Inputs and relevant costs varies with outputs-cost theory (chapter 7)Chapter 6 Production (and Business Organization)1. Production Function and Basic Concepts1.1 The Function Used to describe relationship between inputs and outputs Q = f ( X1, X2, X3, X4, . ) Maximum output, from any set of inputs Short run and long runQ=f( X1, X2, X3, X4, . ) , ALL factors variableQ = f ( X1, X2, X3, X4, . ) FIXED IN SR VARIABLE IN SR1.2 Some Particular Production Functions A function is homogeneous of degree-n, if multiplying all inputs by , increases the dependent variable by n Q = f ( K, L) So, f( K, L) = n Q A Useful Specific function: Cobb-Douglas Production Q = A K L Cobb-Douglas Production Functions are homogeneous of degree + Q = f ( K, L) for two input case1.3 Basic Product Concepts Average Product = Q / L output per labor, which is variable Marginal Product = Q/ L = dQ/dLoutput attributable to last unit of labor applied Total Product1.4 Time Horizon in Production Short run-a period that at least one input can change while at least another input do not have enough time to change. Long run-a period long enough for all inputs to change as producers please. The very long run-In addition to inputs, technology changes2. Short-Run Production: Law of Diminishing Return Marginal ProductL 1 2 3 4 5AverageProductThink about average grade of whole the class and grade of new entrants.Alpha Beta Gama Delta EpsilonGrade 90 80 70 80 100Average 90 85 80 80 84LTotal OutputMarginal ProductLAverageProductInflection pointHow outputs changes with changes in one input?vWhen MP AP, then AP is RISING If your marginal grade in this class is higher than your average grade point average, then your G.P.A. Is risingvWhen MP 1, then IRS 3.4 Reason for Returns to Scale Increasing Return to Scale:vProduct-specific economies specialization learning curve effects.vPlant-specific economiesIndivisibility of Lumpy Equipment Economies in overheadEconomies in required reserves and investment (maintenance)economies of scope (interactions among products).vFirm-specific economies economies in distribution and transportation of a geographically dispersed firm, or economies in marketing, sales promotion, or R&D of multi-product firms. Decreasing Return to ScalevProblems of coordination and control as it is hard to send and receive information as the scale rises.vOther disadvantages of large size: slow decision ladder Inflexibility3.5 Trend of Return to Scale IRS first, and then CRS, and DRS finally 4. The Very Long Run: Technological Changes Technological changes alter production functions Given inputs can produce more outputs 2002 South-Western Publishing Chapter 7 Analysis of Cost The meaning and measurement of cost Short-run Cost Functions Long-run Cost Functions Links between Cost and Production Scale Economies and Cost1. Meaning of Cost in EconomicsThere Are Many Economic Cost Concepts1.1 Various Cost Conception Relevant to Economic CostOpportunity Cost - value of next best alternative use.Explicit vs. Implicit Cost - actual prices paid vs. opportunity cost of owner supplied resources. (Value of ones own resources)Accounting CostActual paymentSunk Costs - already paid for, or there is already a contractual obligation to pay but cannot be recovered. It is irrelevant in decision making.Cost Item Actual Expenditure Value NowMeat and vegetables 500 500Kitchen appliances 1000 500Waitress hour 1000 1000Decoration 2000 0Utilities 500 500In sum 5000 2500Own effort 2000Service of family member 1000Own house 500TOTAL 5000 60001.2 Understand Cost as an EconomistWhen do you start doing the business?First, we do not consider opportunity costs ( the explicit costs are 5000 instead of 2500) Revenue: 4000？ 8000？ 9000？ or more?Second, we do not consider the difference between explicit costs and implicit costs (Suppose no implicit costs) :Revenue: 2000？ 3000？ 5500？ or more? Third, when will you run the business if all cost consideredRevenue: 3000？ 5500？ 6500？ 8000？ 9000？1.3 How economists measure a variety of Costs? Depreciation Cost Measurement. Accounting depreciation (e.g., straight-line depreciation) tends to have little relationship to the actual loss of value To an economist, the actual loss of value is the true cost of using machinery. Inventory Valuation. Accounting valuation depends on its acquisition cost Economists view the cost of inventory as the cost of replacement. Unutilized Facilities. Empty space may a