Chapter 7 Analysis of costs A.Economic analysis of costs B.Least-cost rule and substitution rule C.Economic costs and business accounting D.Opportunity costs 1 2023/7/17 Economics
1 2023/7/17 Economics Chapter 7 Analysis of costs A.Economic analysis of costs B.Least-cost rule and substitution rule C.Economic costs and business accounting D.Opportunity costs
A.Economic analysis of costs Total cost(TC)represents the lowest total expense needed to produce each level of output g. it rises as g rises Fixed cost(FC)represents total expense that is paid out even when no output is produced;it is unaffected y any variation in the quantity of output. Variable cost(VC)represents expense that vary with the level of output---such as raw materials.wages.and fuel---and includes all costs that are not fixed. ■TC=FC+VC (P126) 2 2023/7117 Economics
2 2023/7/17 Economics A.Economic analysis of costs ◼ Total cost(TC) represents the lowest total expense needed to produce each level of output q. it rises as q rises. ◼ Fixed cost(FC) represents total expense that is paid out even when no output is produced;it is unaffected y any variation in the quantity of output. ◼ Variable cost(VC) represents expense that vary with the level of output---such as raw materials.wages.and fuel---and includes all costs that are not fixed. ◼ TC=FC+VC (P126)
Marginal cost and Average cost Marginal cost(MC)denotes the extra or additional cost of producing one extra unit of output. MC=△TC/△q或△VC/△q Average cost(AC)is the total cost divided by the total number of units produced. AC=TC/q AC=AFC+AVC 3 2023/7117 Economics
3 2023/7/17 Economics Marginal cost and Average cost ◼ Marginal cost(MC) denotes the extra or additional cost of producing one extra unit of output. MC=△TC∕ △q 或△VC∕ △q ◼ Average cost(AC) is the total cost divided by the total number of units produced. AC=TC ∕ q AC=AFC+AVC
Table 7-1 All costs and their relation Q FC VC TC MC AC AFC AVC 0 55 0 55 55 30 85 30 85 55 30 2 55 55 110 25 55 28 28 3 55 75 130 20 43 18 25 4 55 105 160 30 40 14 26 5 55 155 210 50 42 11 31 6 55 225 280 70 46 9 38 7 55 315 370 90 52 8 45 55 425 480 110 60 7 60 4 2023/7117 Economics
4 2023/7/17 Economics Table 7-1 All costs and their relation Q FC VC TC MC AC AFC AVC 0 55 0 55 1 55 30 85 30 85 55 30 2 55 55 110 25 55 28 28 3 55 75 130 20 43 18 25 4 55 105 160 30 40 14 26 5 55 155 210 50 42 11 31 6 55 225 280 70 46 9 38 7 55 315 370 90 52 8 45 8 55 425 480 110 60 7 60
Figure 7-1 Total,Fixed,and Variable Cost VC FO Q 5 2023/7/17 Economics
5 2023/7/17 Economics Figure 7-1 Total,Fixed,and Variable Cost O Q C FC VC TC
Figure 7-2 Deriving the variable cost curve Q Q (TP) w.L-VC Q 6 2023/7117 Economics
6 2023/7/17 Economics Figure 7-2 Deriving the variable cost curve O O Q L L Q Q（TPL） L w.L=VC
Figure 7-3 Average cost and Marginal cost MC AC AVC AFC Q 7 2023/7/17 Economics
7 2023/7/17 Economics Figure 7-3 Average cost and Marginal cost O Q C AFC AVC MC AC E F
各种短期成本的变化规律及其关系 ■平均固定成本(AFC)随着产量的增加 一直不断地下降。 ■平均成本(AC)、平均可变成本(AVC 和边际成本(MC)都是先下降后上升。 ■随着产量的增加，AC与AVC的差越来越 小。 ■当AVC最小时，AVC=MC。 ■当AC最小时，AC=MC。 8 2023/7117 Economics
8 2023/7/17 Economics 各种短期成本的变化规律及其关系 ◼ 平均固定成本（AFC）随着产量的增加 一直不断地下降。 ◼ 平均成本（AC）、平均可变成本（AVC） 和边际成本（MC）都是先下降后上升。 ◼ 随着产量的增加，AC与AVC的差越来越 小。 ◼ 当AVC最小时，AVC＝MC。 ◼ 当AC最小时，AC＝MC
Long-run cost ■长期总成本(LTC)=LACQ ■长期平均成本(LAC)=LTC/Q ■长期边际成本(LMC)=△LTC△Q 或=dLTC/dQ 9 2023/7117 Economics
9 2023/7/17 Economics Long-run cost ◼ 长期总成本(LTC)=LAC•Q ◼ 长期平均成本(LAC)=LTC/Q ◼ 长期边际成本(LMC)= ΔLTC/ΔQ 或= dLTC/dQ
B.Least-cost rule and substitution rule(P133-134) Least-cost rule:To produce a given level of output at least cost,a firm should buy inputs until it has equalized the marginal product per dollar spent on each input.This implies that: MPPL=MPKPk Substitution rule:If the price of one factor falls while all other factor prices remain the same.firms will profit by substituting the now-cheaper factor for the other factors until the marginal products per dollar are equal for all inputs 10 2023/7/17 Economics
10 2023/7/17 Economics B. Least-cost rule and substitution rule(P133-134) ◼ Least-cost rule:To produce a given level of output at least cost,a firm should buy inputs until it has equalized the marginal product per dollar spent on each input.This implies that: MPL ∕PL= MPK∕PK ◼ Substitution rule: If the price of one factor falls while all other factor prices remain the same.firms will profit by substituting the now-cheaper factor for the other factors until the marginal products per dollar are equal for all inputs