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Lecture

Production & Cost Schedules

6 Pages
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Department
Economics
Course Code
ECO101H1
Professor
Jack Carr

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Topic 7 t Production & Cost Schedule
(Week seven Oct 25th-Nov 1st)
Outline:
1. Production Function;
2. Product Schedule (Short Run)
-- Definition;
-- Law of Diminishing Returns;
3. Cost of Productions (Short Run)
-- Terminology;
-- Examples;
-- Properties of firms[ cost curves;
4. Average Costs
-- Terminology
-- Examples;
-- why curves are shaped that way and their intercepts;
4. Long-Run Average Cost Curve;
5. Opportunity Cost and the Measurement of Economic Profit
z Production Function: relationship between output and the quantity of input.
Short-run: one input (capital) is fixed; while on input (labor) can vary;
Long-run: all inputs (capital, labor, etc.) can vary.
-- e.g. General Motors;
Short-run: GM can vary the amount of labor (overtime, lay-offs), but cannot vary the number of
plants (selling land);
Long-run: GM can vary both number of plants and amount of labor;
z Product Schedules (short-run)
1. Terminology
TP
Total Product
Total output, given the labor input
MP
Marginal Product
Increase in total output divided by increase in labor input;
AP
Average Product
Total product divided by labor input.
2. Law of Diminishing Returns
The marginal product of a variable input, in the presence of a fixed input, eventually diminishes.
e.g. Numerical Example
Labor
TP
MP
AP
0
0
1
4
4
4
2
10
6
5
3
13
3
4.33
4
15
2
3.75
5
16
1
3.20
Observation:
a. This illustration strictly accords with the law of
diminishing returns
(as labor increases, MP eventually decreases.).
b. If MP is above AP, AP is rising; if MP is less than AP, AP is
falling.
(this is merely mathematical observation, no economic
significance is involved. )
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Description
Topic 7 J Production & Cost Schedule (Week seven Oct 25 -Nov 1 ) st Outline: 1. Production Function; 2. Product Schedule (Short Run) -- Definition; -- Law of Diminishing Returns; 3. Cost of Productions (Short Run) -- Terminology; -- Examples; -- Properties of firms[ cost curves; 4. Average Costs -- Terminology -- Examples; -- why curves are shaped that way and their intercepts; 4. Long-Run Average Cost Curve; 5. Opportunity Cost and the Measurement of Economic Profit z Production Function: relationship between outputnd the quantity of input. Short-run: one input (capital) is fixed; while on input (labor) can vary; Long-run: all inputs (capital, labor, etc.) can vary. -- e.g. General Motors; Short-run: GM can vary the amount of labor (overtime, lay-offs), but cannot vary the number of plants (selling land); Long-run: GM can vary both number of plants and amount of labor; z Product Schedules (short-run) 1. Terminology TP Total Product Total output, given the labor input MP Marginal Product Increase in total output divided by increase in labor input; AP Average Product Total product divided by labor input. 2.Law of Diminishing Returns The marginal product of a variable input, in the presence of a fixed input, eventually diminishes. e.g. Numerical Example Labor TP MP AP Observation: a. This illustration strictly accords with the law of 0 0 diminishing returns 1 4 4 4 (as labor increases, MP eventually decreases.). 2 10 6 5 b. If MP is above AP, AP is rising; if MP is less than AP, AP is 3 13 3 4.33 falling. 4 15 2 3.75 (this is merely mathematical observation, no economic significance is involved. ) 5 16 1 3.20 www.notesolution.com
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