BSB115 Lecture Notes - Lecture 5: Technological Change
Technology, production and costs – Lecture 5
Objectives
- Relatioship etee firs’ produtio ad osts
Understanding firms decision making
- What do we already know?
o Firms are profit maximisers
o Optimal decisions are made at the margin
o The supply curve slopes upwards
Eooists’ ie of the atiities of a fir
- Firms use inputs to produce outputs
- Technology is the process a firm uses to turn inputs into outputs of goods and services
- Technological change results in a change in the ability of a firm to produce more output with
using the same quantity of inputs or the same output using less inputs
o Positive/negative
The short run and the long run
- Time periods over which firms analyses the relationship between their production and their
costs
- Short run: the period durig hih at least oe of the fir’s iputs is fixed
- Long run: a period of time long enough to allow a firm to vary all of its inputs, to adopt new
technology, and to increase or decrease the size of its physical plant
Costs in the short and the long run
- Total cost (TC)
o The cost of all the inputs a firm uses in production
- Variable costs (VC)
o Costs that change as th quantity of outputs changes
- Fixed costs (FC)
o Costs the remain constant as quantity og output changes
- TC = FC + VC
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Document Summary
What do we already know: firms are profit maximisers, optimal decisions are made at the margin, the supply curve slopes upwards. E(cid:272)o(cid:374)o(cid:373)ists" (cid:448)ie(cid:449) of the a(cid:272)ti(cid:448)ities of a fir(cid:373) Technology is the process a firm uses to turn inputs into outputs of goods and services. Technological change results in a change in the ability of a firm to produce more output with using the same quantity of inputs or the same output using less inputs: positive/negative. Time periods over which firms analyses the relationship between their production and their costs. Short run: the period duri(cid:374)g (cid:449)hi(cid:272)h at least o(cid:374)e of the fir(cid:373)"s i(cid:374)puts is fixed. Long run: a period of time long enough to allow a firm to vary all of its inputs, to adopt new technology, and to increase or decrease the size of its physical plant. Costs in the short and the long run. Total cost (tc: the cost of all the inputs a firm uses in production.
