Beruflich Dokumente
Kultur Dokumente
6th edition
by Mark Lovewell
Understanding Economics
6th edition
by Mark Lovewell
Chapter 4
Costs of Production
Copyright 2012 by McGraw-Hill Ryerson Limited. All rights reserved.
Learning Objectives
After this chapter you will be able to:
Types of Production
Productive Efficiency
Economic Costs
explicit costs.
Because accountants consider only explicit
costs, accounting profit always exceeds
economic profit by the amount of the
businesss implicit costs.
80
200
250
270
280
270
Marginal
Product
(q/L)
(T-shirts
per day)
80
120
50
20
10
-10
Average
Product
(q/L)
(T-shirts
per day)
80
100
83.3
67.5
56
45
300
250
TP
200
150
100
50
0
--
Labour
(L)
Diminishing
returns set in
120
100
80
60
AP
40
20
0
-20
MP
MC
10
$ per T-Shirt
8
6
Diminishing
returns set in
4
2
50
100
150
200
250
300
Per-Unit Costs
product)
average variable cost (variable costs divided by
total product)
average cost
either total cost divided by total product
or average fixed cost + average variable cost
80
200
250
270
280
80
120
50
20
10
Average
Marginal Average
Average
Cost
Cost
Fixed Costs Variable
(AC)
(MC)
(AFV)
Costs
(AFC + AVC)
(TC/q)
(FC/q)
(AVC)
(VC/q)
Total
Cost
(TC)
(FC + VC)
$825
$0
$825
825
140
965
825
300
1125
825
425
1250
825
535
1360
825
640
1465
140 $1.75
160
1.33
125
2.50
110
5.50
105 10.50
$10.31
$1.75
$12.06
4.13
1.50
5.63
3.30
1.70
5.00
3.06
1.98
5.04
2.95
2.29
5.24
12
MC
$ per T-Shirt
10
8
AC
b
AFC
AVC
2
a
0
50
100
150
200
250
300
AC4
$ per Magazine
AC1
AC2
Range A
AC3
Range B
Range C
Long-Run AC
Extended Range of
Constant Returns
to Scale
Extended Range of
Increasing Returns
to Scale
Quantity of Output
Long-Run AC
Quantity of Output
$ per Unit
Long-Run AC
$ per Unit
$ per Unit
Long-Run AC
Quantity of Output
$50 000
$ 15 000
3 500
1 000
500
Total profit
$20 000
$ 30 000
$50 000
Explicit Costs
Food
Fuel
Depreciation
Interest on loan
Total explicit costs
$ 15 000
3 500
1 000
500
Implicit Costs
Owners wage
Normal profit
Total implicit costs
$ 25 000
3 000
$20 000
Economic Profit
$28 000
$ 2 000
Montreal Exchange.
There are two main types of derivatives:
Future contracts represent agreements to
Understanding Economics
6th edition
by Mark Lovewell
Chapter 4
The End
Copyright 2012 by McGraw-Hill Ryerson Limited. All rights reserved.