0 Ch05 Analysis of Cost Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY Ch05 Analysis of Cost
1907 06-2 Topics to be Discussed Measuring Cost:Which Costs Matter? ·Cost in the Short Run ·Cost in the Long Run Long-Run Versus Short-Run Cost Curves Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY 06-2 Topics to be Discussed • Measuring Cost: Which Costs Matter? • Cost in the Short Run • Cost in the Long Run • Long-Run Versus Short-Run Cost Curves
190 06-3 5.1 WHAT ARE COSTS? Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY 06-3 5.1 WHAT ARE COSTS?
1907 06-4 3树 Total Revenue,Total Cost,and Profit ·Total Revenue -The amount a firm receives for the sale of its output. ·Total Cost -The market value of the inputs a firm uses in production Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY 06-4 Total Revenue, Total Cost, and Profit • Total Revenue – The amount a firm receives for the sale of its output. • Total Cost – The market value of the inputs a firm uses in production
06-5 0 砂 Profit is the firm's total revenue minus its total cost. Profit Total revenue Total cost Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY 06-5 Total Revenue, Total Cost, and Profit • Profit is the firm’s total revenue minus its total cost. Profit = Total revenue Profit = Total revenue - Total cost Total cost
1907 06-6 Measuring Cost: Which Costs Matter? ·Accounting Cost -Actual expenses plus depreciation charges for capital equipment ·Economic Cost Cost to a firm of utilizing economic resources in production,including opportunity cost Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY 06-6 Measuring Cost: Which Costs Matter? • Accounting Cost – Actual expenses plus depreciation charges for capital equipment • Economic Cost – Cost to a firm of utilizing economic resources in production, including opportunity cost
06-7 10 Measuring Cost: Which Costs Matter? ·Opportunity cost. A firm's cost of production includes all the opportunity costs of making its output of goods and services. Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY 06-7 • Opportunity cost. • A firm’s cost of production includes all the opportunity costs of making its output of goods and services. Measuring Cost: Which Costs Matter?
1907 06-8 树 Measuring Cost: Which Costs Matter? ·An Example -A firm owns its own building and pays no rent for office space Does this mean the cost of office space is zero? Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY 06-8 • An Example – A firm owns its own building and pays no rent for office space – Does this mean the cost of office space is zero? Measuring Cost: Which Costs Matter?
06-9 0 6.2 Cost in the Short Run 。 Total 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), 0r.. TC=FC+VC Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY 06-9 • Total 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), or… TC FC VC 6.2 Cost in the Short Run
1907 06-10 Cost in the Short Run ·Fixed Cost Does not vary with the level of output ·Variable Cost Cost that varies as output varies Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY 06-10 • Fixed Cost – Does not vary with the level of output • Variable Cost – Cost that varies as output varies Cost in the Short Run
