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Calculating Marginal Cost Cost Curves We illustrate the relationship between output and the various cost measures in Figure 6.1. Panel a shows the variable cost, fixed cost, and total cost curves that cor- respond to Table 6.1. The fixed cost, which does not vary with output, is a horizontal line at $48. The variable cost curve is… Continue reading Calculating Marginal Cost assignment

Variable Cost and Total Product The firm’s short-run variable cost curve and its total prod- uct curve have the same shape. The total product curve uses the horizontal axis measuring hours of work. The variable cost curve uses the horizontal axis measuring labor cost, which is the only variable cost.     1656.2 Short-Run Costs… Continue reading Variable Cost and Total Product

Combining Cost and Production Information. By combining the information about costs contained in the isocost lines with information about efficient production summarized by an isoquant, a firm chooses the lowest-cost way to produce a given level of output. We illustrate how a Japanese beer manufacturer picks the combination of labor and capital that minimizes its… Continue reading Combining Cost and Production Information

Cost Minimization The beer manufacturer mini- mizes its cost of producing 100 units of output by producing at x (L = 50 and K = 100). This cost-minimizing combination of inputs is determined by the tan- gency between the q = 100 iso- quant and the lowest isocost line, $2,000, that touches that iso- quant.… Continue reading Discussion on Cost Minimization

Cost Minimization by Trial and Error Managerial Implication     174 CHAPTER 6 Costs labor becomes relatively less expensive. Moreover, the firm’s cost of producing 100 units falls from $2,000 to $1,032 because of the fall in the wage. This example illustrates that a change in the relative prices of inputs affects the mix of… Continue reading Cost Minimization by Trial and Error

The Shapes of Long-Run Cost Curves The shapes of the long-run average cost and marginal cost curves depend on the shape of the long-run total cost curve. The long-run cost curve in panel a of Figure 6.6 corresponds to the long-run average and marginal cost curves in panel b. The long- run cost curve of this… Continue reading The Shapes of Long Run Cost Curves

Scale Economies Share of Manufacturing Industries, % Economies of scale: Initially downward-sloping AC 57 Everywhere downward-sloping AC 18 L-shaped AC (downward-sloping, then flat) 31 U-shaped AC 8 No economies of scale: Flat AC 23 Diseconomies of scale: Upward-sloping AC 14 Source: Robidoux and Lester (1992). TABLE 6.4 Shape of Average Cost Curves in Canadian Manufacturing… Continue reading Scale Economies Share of Manufacturing

Economies of Scale in Nuclear Power Plants     1796.3 Long-Run Costs refueling outages, which take place on average every 18 months, a con- solidated nuclear company can hire highly skilled employees and train them to appreciate the idiosyncra- sies of the company’s reactors. In addition, consolidated firms may have employees and managers share best… Continue reading Economies of Scale in Nuclear Power Plants

Cumulative production of Pentium CPU, Millions of units FIGURE 6.8 Learning by Doing (a) As Intel produced more cumulative CPUs, the average cost of production fell (Salgado, 2008). (b) In any one period, extra production reduces a firm’s average cost due to economies of scale: because q1 6 q2 6 q3, A is higher than… Continue reading Cumulative production of Pentium CPU