微觀經(jīng)濟(jì)學(xué)（平狄克、魯賓費(fèi)爾德）第六版課后答案--微觀經(jīng)濟(jì)學(xué)英文原版--CH07_PINDYCK

1、Chapter 7The Cost of ProductionTopics to be DiscussedMeasuring Cost: Which Costs Matter?Cost in the Short RunCost in the Long RunLong-Run Versus Short-Run Cost Curves2Topics to be DiscussedProduction with Two Outputs: Economies of ScopeDynamic Changes in Costs: The Learning CurveEstimating and Predi

2、cting Cost3IntroductionProduction technology measures the relationship between input and outputProduction technology, together with prices of factor inputs, determine the firms cost of productionGiven the production technology, managers must choose how to produce4IntroductionThe optimal, cost minimi

3、zing, level of inputs can be determinedA firms costs depend on the rate of output and we will show how these costs are likely to change over timeThe characteristics of the firms production technology can affect costs in the long run and short run5Measuring Cost:Which Costs Matter?For a firm to minim

4、ize costs, we must clarify what is meant by costs and how to measure themIt is clear that if a firm has to rent equipment or buildings, the rent they pay is a costWhat if a firm owns its own equipment or building?How are costs calculated here?6Measuring Cost:Which Costs Matter?Accountants tend to ta

5、ke a retrospective view of firms costs, whereas economists tend to take a forward-looking viewAccounting CostActual expenses plus depreciation charges for capital equipmentEconomic CostCost to a firm of utilizing economic resources in production, including opportunity cost7Measuring Cost:Which Costs

6、 Matter?Economic costs distinguish between costs the firm can control and those it cannotConcept of opportunity cost plays an important roleOpportunity costCost associated with opportunities that are foregone when a firms resources are not put to their highest-value use8Opportunity CostAn ExampleA f

7、irm owns its own building and pays no rent for office spaceDoes this mean the cost of office space is zero?The building could have been rented insteadForegone rent is the opportunity cost of using the building for production and should be included in the economic costs of doing business9Opportunity

8、CostA person starting their own business must take into account the opportunity cost of their timeCould have worked elsewhere making a competitive salary Accountants and economists often treat depreciation differently as well10Measuring Cost:Which Costs Matter?Although opportunity costs are hidden a

9、nd should be taken into account, sunk costs should notSunk CostExpenditure that has been made and cannot be recoveredShould not influence a firms future economic decisions11Sunk CostFirm buys a piece of equipment that cannot be converted to another useExpenditure on the equipment is a sunk costHas n

10、o alternative use so cost cannot be recovered opportunity cost is zeroDecision to buy the equipment might have been good or bad, but now does not matter12Prospective Sunk CostAn ExampleFirm is considering moving its headquartersA firm paid $500,000 for an option to buy a buildingThe cost of the buil

11、ding is $5 million for a total of $5.5 millionThe firm finds another building for $5.25 millionWhich building should the firm buy?13Prospective Sunk CostExample (cont.)The first building should be purchasedThe $500,000 is a sunk cost and should not be considered in the decision to buyWhat should be

12、considered isSpending an additional $5,250,000 orSpending an additional $5,000,00014Measuring Cost:Which Costs Matter?Some costs vary with output, while some remain the same no matter the amount of outputTotal cost can be divided into:Fixed CostDoes not vary with the level of outputVariable Cost Cos

13、t that varies as output varies15Fixed and Variable CostsTotal 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), or16Fixed and Variable CostsWh

14、ich costs are variable and which are fixed depends on the time horizonShort time horizon most costs are fixedLong time horizon many costs become variableIn determining how changes in production will affect costs, must consider if fixed or variable costs are affected.17Fixed Cost Versus Sunk CostFixe

15、d cost and sunk cost are often confusedFixed CostCost paid by a firm that is in business regardless of the level of outputSunk Cost Cost that has been incurred and cannot be recovered18Measuring Cost:Which Costs Matter?Personal ComputersMost costs are variable Largest component: laborSoftwareMost co

16、sts are sunkInitial cost of developing the software19Marginal and Average CostIn completing a discussion of costs, must also distinguish betweenAverage CostMarginal CostAfter definition of costs is complete, one can consider the analysis between short-run and long-run costs20Measuring CostsMarginal

17、Cost (MC):The cost of expanding output by one unitFixed costs have no impact on marginal cost, so it can be written as:21Measuring CostsAverage Total Cost (ATC)Cost per unit of outputAlso equals average fixed cost (AFC) plus average variable cost (AVC)22Measuring CostsAll the types of costs relevant

18、 to production have now been discussedCan now discuss how they differ in the long and short runCosts that are fixed in the short run may not be fixed in the long runTypically in the long run, most if not all costs are variable23A Firms Short Run Costs24Determinants of Short Run CostsThe rate at whic

19、h these costs increase depends on the nature of the production processThe extent to which production involves diminishing returns to variable factorsDiminishing returns to laborWhen marginal product of labor is decreasing25Determinants of Short Run CostsIf marginal product of labor decreases signifi

20、cantly as more labor is hiredCosts of production increase rapidlyGreater and greater expenditures must be made to produce more outputIf marginal product of labor decreases only slightly as increase laborCosts will not rise very fast when output is increased26Determinants of Short Run Costs An Exampl

21、eAssume the wage rate (w) is fixed relative to the number of workers hiredVariable costs is the per unit cost of extra labor times the amount of extra labor: wL27Determinants of Short Run Costs An ExampleRemembering that And rearranging 28Determinants of Short Run Costs An ExampleWe can conclude:and

22、 a low marginal product (MPL) leads to a high marginal cost (MC) and vice versa29Determinants of Short Run CostsConsequently (from the table):MC decreases initially with increasing returns 0 through 4 units of outputMC increases with decreasing returns5 through 11 units of output30Cost CurvesThe fol

23、lowing figures illustrate how various cost measures change as outputs changeCurves based on the information in table 7.1 discussed earlier31Cost Curves for a FirmOutputCost($ peryear)100200300400012345678910111213VCVariable costincreases with production andthe rate varies withincreasing anddecreasin

24、g returns.TCTotal costis the verticalsum of FC and VC.FC50Fixed cost does notvary with output32Cost CurvesMCATCAVCAFC33Cost CurvesWhen MC is below AVC, AVC is fallingWhen MC is above AVC, AVC is risingWhen MC is below ATC, ATC is fallingWhen MC is above ATC, ATC is risingTherefore, MC crosses AVC an

25、d ATC at the minimumsThe Average Marginal relationship34Cost Curves for a FirmThe line drawn from the origin to the variable cost curve:Its slope equals AVCThe slope of a point on VC or TC equals MCTherefore, MC = AVC at 7 units of output (point A)12345678910111213OutputP100200300400FCVCTCA35Cost in

26、 the Long RunIn the long run a firm can change all of its inputsIn making cost minimizing choices, must look at the cost of using capital and labor in production decisions36Cost in the Long RunCapital is either rented/leased or purchasedWe will consider capital rented as if it were purchasedAssume D

27、elta is considering purchasing an airplane for $150 millionPlane lasts for 30 years$5 million per year economic depreciation for the plane37Cost in the Long RunDelta needs to compare its revenues and costs on an annual basisIf the firm had not purchased the plane, it would have earned interest on th

28、e $150 millionForgone interest is an opportunity cost that must be considered38User Cost of CapitalThe user cost of capital must be consideredThe annual cost of owning and using the airplane instead of selling or never buying itSum of the economic depreciation and the interest (the financial return)

29、 that could have been earned had the money been invested elsewhere39Cost in the Long RunUser Cost of Capital = Economic Depreciation + (Interest Rate)*(Value of Capital)= $5 mil + (.10)($150 mil depreciation)Year 1 = $5 million + (.10)($150 million) = $20 millionYear 10 = $5 million +(.10)($100 mill

30、ion) = $15 million40Cost in the Long RunUser cost can also be described as:Rate per dollar of capital, rr = Depreciation Rate + Interest RateIn our example, depreciation rate was 3.33% and interest was 10%, so r = 3.33% + 10% = 13.33%41Cost Minimizing Input ChoiceHow do we put all this together to s

31、elect inputs to produce a given output at minimum cost?AssumptionsTwo Inputs: Labor (L) and capital (K)Price of labor: wage rate (w)The price of capital r = depreciation rate + interest rateOr rental rate if not purchasingThese are equal in a competitive capital market42Cost in the Long RunThe Isoco

32、st LineA line showing all combinations of L & K that can be purchased for the same costTotal cost of production is sum of firms labor cost, wL, and its capital cost, rK:C = wL + rKFor each different level of cost, the equation shows another isocost line43Cost in the Long RunRewriting C as an equatio

33、n for a straight line:K = C/r - (w/r)LSlope of the isocost: -(w/r) is the ratio of the wage rate to rental cost of capital.This shows the rate at which capital can be substituted for labor with no change in cost44Choosing Inputs We will address how to minimize cost for a given level of output by com

34、bining isocosts with isoquantsWe choose the output we wish to produce and then determine how to do that at minimum costIsoquant is the quantity we wish to produceIsocost is the combination of K and L that gives a set cost45Producing a Given Output at Minimum CostLabor per yearCapitalperyearIsocost C

35、2 shows quantity Q1 can be produced withcombination K2,L2 or K3,L3.However, both of theseare higher cost combinationsthan K1,L1.Q1Q1 is an isoquant for output Q1.There are three isocost lines, of which 2 are possible choices in which to produce Q1.C0C1C2AK1L1K3L3K2L246Input Substitution When an Inpu

36、t Price ChangeIf 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 outputIf price of labor increases relative to price of capital, and capital is substituted for labor47Input Substitution When an Input Price

37、ChangeC2The new combination of K and L is used to produce Q1.Combination B is used in place of combination A.K2L2BC1K1L1AQ1If the price of laborrises, the isocost curvebecomes steeper due to the change in the slope -(w/L).Labor per yearCapitalperyear48Cost in the Long RunHow does the isocost line re

38、late to the firms production process?49Cost in the Long RunThe minimum cost combination can then be written as:Minimum cost for a given output will occur when each dollar of input added to the production process will add an equivalent amount of output.50Cost in the Long RunIf w = $10, r = $2, and MP

39、L = MPK, which input would the producer use more of?Labor because it is cheaperIncreasing labor lowers MPLDecreasing capital raises MPKSubstitute labor for capital until51Cost in the Long RunCost minimization with Varying Output LevelsFor each level of output, there is an isocost curve showing minim

40、um cost for that output levelA firms expansion path shows the minimum cost combinations of labor and capital at each level of outputSlope equals K/L52A Firms Expansion PathExpansion PathThe expansion path illustratesthe least-cost combinations oflabor and capital that can be used to produce each lev

41、el ofoutput in the long-run.Capitalperyear25507510015050Labor per year100150300200A$2000200 UnitsB$3000300 UnitsC53Expansion Path and Long Run CostsFirms expansion path has same information as long-run total cost curveTo move from expansion path to LR cost curveFind tangency with isoquant and isocos

42、tDetermine min cost of producing the output level selectedGraph output-cost combination54A Firms Long Run Total Cost CurveLong Run Total CostOutput, Units/yr100300200Cost/ Year100020003000DEF55Long Run Versus Short Run Cost CurvesIn the short run, some costs are fixedIn the long run, firm can change

43、 anything including plant sizeCan produce at a lower average cost in long run than in short runCapital and labor are both flexibleWe can show this by holding capital fixed in the short run and flexible in long run56Capital is fixed at K1.To produce q1, min cost at K1,L1.If increase output to Q2, min

44、 costis K1 and L3 in short run.The Inflexibility of Short Run ProductionLong-RunExpansion PathLabor per yearCapitalperyearL2Q2K2DCFEQ1ABL1K1L3PShort-RunExpansion PathIn LR, can change capital and min costs falls to K2 and L2.57Long Run VersusShort Run Cost CurvesLong-Run Average Cost (LAC)Most impor

45、tant determinant of the shape of the LR AC and MC curves is relationship between scale of the firms operation and inputs required to minimize costConstant Returns to ScaleIf input is doubled, output will doubleAC cost is constant at all levels of output58Long Run Versus Short Run Cost CurvesIncreasi

46、ng Returns to ScaleIf input is doubled, output will more than doubleAC decreases at all levels of outputDecreasing Returns to ScaleIf input is doubled, output will less than doubleAC increases at all levels of output59Long Run Versus Short Run Cost CurvesIn the long run:Firms experience increasing a

47、nd decreasing returns to scale and therefore long-run average cost is “U” shaped.Source of U-shape is due to returns to scale instead of decreasing returns to scale like the short-run curveLong-run marginal cost curve measures the change in long-run total costs as output is increased by 1 unit60Long

48、 Run Versus Short Run Cost CurvesLong-run marginal cost leads long-run average cost:If LMC LAC, LAC will riseTherefore, LMC = LAC at the minimum of LACIn special case where LAC is constant, LAC and LMC are equal61Long Run Average and Marginal CostOutputCost($ per unitof outputLACLMCA62Long Run Costs

49、As output increases, firms AC of producing is likely to decline to a pointOn a larger scale, workers can better specializeScale can provide flexibility managers can organize production more effectivelyFirm may be able to get inputs at lower cost if can get quantity discounts. Lower prices might lead

50、 to different input mix.63Long Run CostsAt some point, AC will begin to increaseFactory space and machinery may make it more difficult for workers to do their jobs efficientlyManaging a larger firm may become more complex and inefficient as the number of tasks increaseBulk discounts can no longer be

51、 utilized. Limited availability of inputs may cause price to rise.64Long Run CostsWhen input proportions change, the firms expansion path is no longer a straight lineConcept of return to scale no longer appliesEconomies of scale reflects input proportions that change as the firm changes its level of

52、 production65Economies and Diseconomies of ScaleEconomies of ScaleIncrease in output is greater than the increase in inputsDiseconomies of ScaleIncrease in output is less than the increase in inputsU-shaped LAC shows economies of scale for relatively low output levels and diseconomies of scale for h

53、igher levels66Long Run CostsIncreasing Returns to ScaleOutput more than doubles when the quantities of all inputs are doubledEconomies of ScaleDoubling of output requires less than a doubling of cost67Long Run CostsEconomies of scale are measured in terms of cost-output elasticity, ECEC is the perce

54、ntage change in the cost of production resulting from a 1-percent increase in output68Long Run CostsEC is equal to 1, MC = ACCosts increase proportionately with outputNeither economies nor diseconomies of scaleEC 1 when MC 1 when MC ACDiseconomies of scaleBoth MC and AC are rising69Long Run Versus S

55、hort Run Cost CurvesWe will use short and long run costs to determine the optimal plant sizeWe can show the short run average costs for 3 different plant sizesThis decision is important because once built, the firm may not be able to change plant size for a while70Long Run Cost withConstant Returns

56、to ScaleThe optimal plant size will depend on the anticipated outputIf expect to produce q0, then should build smallest plant: AC = $8If produce more, like q1, AC risesIf expect to produce q2, middle plant is least costIf expect to produce q3, largest plant is best71Long Run Cost with Economiesand D

57、iseconomies of Scale72Long Run Cost withConstant Returns to ScaleWhat is the firms long run cost curve?Firms can change scale to change output in the long runThe long run cost curve is the dark blue portion of the SAC curve which represents the minimum cost for any level of outputFirm will always ch

58、oose plant that minimizes the average cost of production73Long Run Cost withConstant Returns to ScaleThe long-run average cost curve envelops the short-run average cost curvesThe LAC curve exhibits economies of scale initially but exhibits diseconomies at higher output levels74Production with Two Ou

59、tputs Economies of ScopeMany firms produce more than one product and those products are closely linkedExamples:Chicken farm-poultry and eggsAutomobile company-cars and trucksUniversity-teaching and research75Production with Two Outputs Economies of ScopeAdvantagesBoth use capital and laborThe firms

60、share management resourcesBoth use the same labor skills and types of machinery76Production with Two Outputs Economies of ScopeFirms must choose how much of each to produceThe alternative quantities can be illustrated using product transformation curvesCurves showing the various combinations of two