Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
A. Farah
(alfafarah@gmail.com)
Lecture 4
Production & Cost in the Short Run
1
A. Farah Created : Sept 2014
Equilibrium Price & Output
Supply and Demand
Demand
Consumer behavior
Maximizing utility of consuming goods
2
A. Farah Created : Sept 2014
We’ve already talked about what consumers’
want, but then who’s gonna produce what
they want?
And how to produce what they want?
Supply Curve
3
A. Farah Created : Sept 2014
Production Process
4
A. Farah Created : Sept 2014
Profit-maximizing firms
•2.
•1. Which •3.
How much production How much of
output to technology each input to
supply to use demand
5
A. Farah Created : Sept 2014
Production Function
Inputs :
labor, land, raw materials, capital, entrepreneurship
q = f(K, L)
The production function specifies the maximum output that can
be produced with a given quantity of inputs, given available
technical knowledge
6
A. Farah Created : Sept 2014
Short Run vs Long Run
7
A. Farah Created : Sept 2014
Production in the Short Run
8
A. Farah Created : Sept 2014
40
Tonnes of wheat produced per year
30
20
10
0
0 1 2 3 4 5 6 7 8
Number of farm workers
A. Farah Created : Sept 2014
Production in the Short Run
Production with One Variable Input
Units of Units of Total Average Marginal
Labor (L) Capital (K) Product Product Product
0 10 0
1 10 3 3 3
2 10 10 5 7
3 10 24 8 14
4 10 36 9 12
5 10 40 8 4
6 10 42 7 2
7 10 42 6 0
8 10 40 5 -2
11
A. Farah Created : Sept 2014
d
40
TPP
Tonnes of wheat produced per year
30 Maximum output
Diminishing returns
20 set in here
b
10
20
10
DTPP = 7
0 Number of
0 1 2 3 4 5 6 7 8 farm workers (L)
DL = 1
Tonnes of wheat per year
14
12
10
8 MPP = DTPP / DL = 7
6
4
2
0 Number of
-2 0 1 2 3 4 5 6 7 8 farm workers (L)
A. Farah Created : Sept 2014
Tonnes of wheat per year
40
TPP
30
20
10
0 Number of
0 1 2 3 4 5 6 7 8 farm workers (L)
Tonnes of wheat per year
14
12
10
8
6
4
2
0 Number of
-2 0 1 2 3 4 5 6 7 8 farm workers (L)
MPP
A. Farah Created : Sept 2014
40
20 b
Diminishing returns
10 set in here
0 Number of
0 1 2 3 4 5 6 7 8 farm workers (L)
b
14
Tonnes of wheat per year
12
10
8
6
4 APP
2
0 Number of
-2 0 1 2 3 4 5 6 7 8 farm workers (L)
A. Farah
MPP Created : Sept 2014
d
20 Maximum
b
output
10
0 Number of
0 1 2 3 4 5 6 7 8 farm workers (L)
b
Tonnes of wheat per year
14
12
10
8
6
4 APP
2
0 d
0 1 2 3 4 5 6 7 8
Number of
-2 farm workers (L)
A. Farah
MPP Created : Sept 2014
d
40 Slope = TPP / L
20 b
10
0 Number of
0 1 2 3 4 5 6 7 8 farm workers (L)
b
14
Tonnes of wheat per year
12
10 c
8
6
4 APP
2
0 d Number of
-2 0 1 2 3 4 5 6 7 8 farm workers (L)
MPP
A. Farah Created : Sept 2014
3 Production Concept
1. Total Product
2. Average Product
3. Marginal Product
18
A. Farah Aug 19, 2010
Cost in the Short Run
19
A. Farah Aug 19, 2010
Cost in the Short Run
Total Total
Output Fixed Variable Total Cost
Cost Cost
0 12 0 12
1 12 10 22
2 12 16 28
3 12 21 33
4 12 28 40
5 12 40 52
6 12 60 72
7 12 91 103
Draw!
20
A. Farah Created : Sept 2014
Output TFC TVC TC TC
100 (Q) (£) (£) (£)
TVC
0 12 0 12
80 1 12 10 22
2 12 16 28
3 12 21 33
60 4 12 28 40
5 12 40 52
6 12 60 72 Diminishing
7 12 91 103 marginal
40
returns set in
here
20
TFC
0
0 1 2 3 4 5 6 7 8
A. Farah Created : Sept 2014
TC = TFC +TVC
22
A. Farah Aug 19, 2010
TLDR & MC
MC
Diminishing
marginal
returns set in
here
Costs (£)
x
Output (Q)
AC & MC
24
A. Farah Aug 19, 2010
Average and marginal costs
MC
AC
AVC
Costs (£)
z
y
x
AFC
Output (Q)
A. Farah Aug 19, 2010