ECON 101 Introduction to Economics1

Size: px
Start display at page:

Download "ECON 101 Introduction to Economics1"

Transcription

1 ECON 101 Introduction to Economics1 Session 10 Cost Concept Lecturer: Mrs. Hellen A. Seshie-Nasser, Department of Economics Contact Information: College of Education School of Continuing and Distance Education 2014/ /2017

2 Session Overview There is a difference between economist s measure of profit and accountant s measure of profit. Profit is the difference between total revenue and total cost. For economists, total cost includes the opportunity cost of owner s capital. This session seeks to explain the concept of cost in economics. Dr. RicMrs. Hellen Seshie-Nasser, Dept.of Economics, Slide 2

3 Session Objectives At the end of the session, the student should be able to: Differentiate between implicit cost and explicit cost. Determine economic cost. Understand accounting profit and economic profit. Understand costs in the short run with mathematical calculations. Calculate Total, Fixed and Variable costs as well as Per unit Fixed and Variable costs (Average Variable Cost, Average Fixed cost and Average Total Cost) Represent the various measures of costs with curves. Demonstrate the relationship between the cost curves. Understand costs in the long run. Slide 3

4 Session Outline The key topics to be covered in the session are as follows: Cost Concept Economic Costs Costs in the Short run Short and Long run cost curves Economies and Diseconomies of Scale Slide 4

5 Reading List Lipsey R. G. and K. A. Chrystal. (2007). Economics. 11 th Edition. Oxford University Press. Bade R. and M. Parkin. (2009). Foundations of Microeconomics. 4 th Edition. Boston: Pearson Education Inc., Begg. D. Fischer S. and R. Dornbusch. (2003). Economics. 7 th Edition. McGraw-Hill Slide 5

6 The Cost Concept Accounting cost refers to the monetary outlay on inputs. Thus, the explicit cost of inputs. Economic cost refers to the opportunity cost of use of resources. This involves both the explicit and implicit costs of resources Slide 6

7 The Cost Concept Economic cost Explicit Costs Plant and equipment Raw materials Wages and salaries (cost of resources acquired from outside the firm and paid for) Implicit Costs forgone wages forgone rent (forgone benefits as a result of use of owner resources) Slide 7

8 Economic Costs Explicit costs arise from transactions in which the firm purchases inputs or the services of other parties. E.g. wages and salaries of workers, cost of raw materials, insurance, electricity Implicit costs are those associated with the use of the firm s own resources and reflect the fact that these resources could have been employed elsewhere. These costs are sometimes difficult to measure. Examples: A firm in the owner s own building, where he does not pay rent. This cost is implicit Being a manager of his own production firm, he does not pay himself a salary. Slide 8

9 Economic Costs Economists thus count the opportunity cost of the owner s capital as part of a firm s costs. It includes an estimate of what the capital, and any other advantages owned by the firm, could have earned in their best alternative uses. Thus economic cost is the opportunity cost of resources used explicit costs paid in money wages, rent, material, etc. implicit costs opportunity cost of resources used Slide 9

10 Accounting Profit and Economic profit Accounting profit = total revenue(tr) explicit costs TR = (price)(quantity) It ignores opportunity cost Economic profit includes opportunity costs. Economic profit = total revenue - total costs = (price)(quantity) - (explicit + implicit costs) Slide 10

11 Economic View vs.. Accounting View Slide 11

12 Normal Profit Amount of accounting profit = opportunity costs of resources It is the same as zero economic profit That is, TR opportunity costs = 0 Slide 12

13 Costs in the Short Run Costs are measured in 3 ways: total cost marginal cost average cost Total cost of production varies with the rate of output. In the short run, there are two types of costs; Fixed costs Variable costs Slide 13

14 Costs in the Short Run Assume the costs of producing chairs as: Labour = 6/ hour TFC = 10/ hour (the cost of the workshop) workers TP TFC TVC TC Slide 14

15 TC, TVC and TFC TC TC TVC 10 TFC Slide 15 Q = output

16 Short Run Total Cost Curves Cost TC Cost TC TVC TVC TFC TFC Output Output Dr. Richard Boateng, UGBS Slide 16

17 Per unit Costs Average Fixed Cost (AFC) is the total fixed cost divided by the quantity of output. It is the fixed cost per unit of output. It declines with output level. Since fixed cost is constant, the greater the output, the lower the AFC Average Variable Cost (AVC) is the variable cost per unit of output. Slide 17

18 Per unit Costs Average total cost (ATC) is the total cost per unit of output. Total cost divided by quantity of output. It can also be expressed as the sum of AFC and AVC. Slide 18

19 Per unit Costs TP TFC TVC TC AFC AVC AC Slide 19

20 Marginal Cost Marginal cost (MC) is the change in total cost resulting from changing the rate of production by one unit. Change in TC due to one-unit increase in output (Q) MC = change in TC change in Q Slide 20

21 TP, TFC, TVC, TC and MC TP TFC TVC TC MC Slide 21

22 MC, ATC, AVC & AFC AC, MC MC ATC AVC AFC Slide 22 Q = output

23 Relationship between Short Run per unit Cost Curves Cost MC ATC AVC Output Slide 23 AFC

24 MC and AC MC intersects AC at the minimum of AC When MC < AC, AC is falling When MC > AC, AC is rising Slide 24

25 What shifts cost curves? Technology make more with same inputs shifts TP, MP, AP up changes ATC curve Changes in factor prices (e.g. increase in input prices) increase fixed costs -- TFC, AFC shift up -- TC shifts up increase wages (variable) -- TVC, AVC, MC shift up -- TC shift up Slide 25

26 Long Run Costs: Average Cost (LRAC) In the LR, all inputs (and costs) are variable. TC = TVC AC = AVC Short Run AC curves are from different plant sizes The long run AC gives the lowest average cost when all inputs are variable. It is the envelop of all short run ACs Slide 26

27 Long Run Costs: Average Cost (LRAC) AC AC1 AC2 AC3 AC4 LRAC Slide 27 Q = output

28 Economies of Scale What happens if in the Long run the firm increases plant AND labour by 10%? Will; AC fall? AC rise? AC stay same? ECONOMIES OF SCALE If inputs are increased by 10% and this leads to an increase in output by more than 10%, then AC falls. Why? gains from specialization both from -- Labour -- Capital The firm is said to exhibit Increasing Returns to Scale Slide 28

29 Diseconomies of Scale On the other hand, if inputs are increased by 10%, and output increases by less than 10%, then AC rises. Why? The firm has grown large such that, it has become too hard to control. The firm is said to be exhibiting Decreasing Returns to Scale CONSTANT RETURNS TO SCALE It occurs if for example, the firm increases inputs by 10%, and output also increases by same 10%. AC remains same Dr. Richard Boateng, UGBSMrs. Hellen Seshie- Nasser, Dept.of Economics, Slide 29

30 Economies of Scale vs Diseconomies of Scale AC AC1 ATC2 ATC3 ATC4 economies of scale constant returns to scale diseconomies of scale Q = output Slide 30

ECON 101 Introduction to Economics1

ECON 101 Introduction to Economics1 ECON 101 Introduction to Economics1 Session 11 Market Structures(Perfect Competition) Lecturer: Mrs. Hellen A. Seshie-Nasser, Department of Economics Contact Information: haseshie@ug.edu.gh College of

More information

ECON 101 Introduction to Economics1

ECON 101 Introduction to Economics1 ECON 101 Introduction to Economics1 Session 12 Market Structures(Monopoly) Lecturer: Mrs. Hellen A. Seshie-Nasser, Department of Economics Contact Information: haseshie@ug.edu.gh College of Education School

More information

ECON 101 Introduction to Economics1

ECON 101 Introduction to Economics1 ECON 101 Introduction to Economics1 Session 9 Production Lecturer: Mrs. Hellen A. Seshie-Nasser, Department of Economics Contact Information: haseshie@ug.edu.gh College of Education School of Continuing

More information

Total Costs. TC = TFC + TVC TFC = Fixed Costs. TVC = Variable Costs. Constant costs paid regardless of production

Total Costs. TC = TFC + TVC TFC = Fixed Costs. TVC = Variable Costs. Constant costs paid regardless of production AP Microeconomics Total Costs TC = TFC + TVC TFC = Fixed Costs Constant costs paid regardless of production TVC = Variable Costs Costs that vary as production is changed Cost TFC TVC TFC Output Profit

More information

Going Back To School. Meet Sam

Going Back To School. Meet Sam Going Back To School Meet Sam Graduating Class of 12 Not a single callback for an interview Decision to go back to school Joined millions of students Why? The Costs of Production Chapter 9 Explicit Costs

More information

ECON 101 Introduction to Economics1

ECON 101 Introduction to Economics1 ECON 101 Introduction to Economics1 Session 7 The Concept of Elasticity II Lecturer: Mrs. Hellen A. Seshie-Nasser, Department of Economics Contact Information: haseshie@ug.edu.gh College of Education School

More information

Mr Sydney Armstrong ECN 1100 Introduction to Microeconomics Lecture Note (6) The costs of Production Economic Costs

Mr Sydney Armstrong ECN 1100 Introduction to Microeconomics Lecture Note (6) The costs of Production Economic Costs Mr Sydney Armstrong ECN 1100 Introduction to Microeconomics Lecture Note (6) The costs of Production Economic Costs Costs exist because resources are scarce, productive and have alternative uses. When

More information

The Market Forces of Supply and Demand

The Market Forces of Supply and Demand Theory of the Firm The Market Forces of Supply and Demand Supply and demand are the two words that economists use most often Supply and demand are the forces that make market economies work. Modern microeconomics

More information

Lecture 10. The costs of production

Lecture 10. The costs of production Lecture 10 The costs of production By the end of this lecture, you should understand: what items are included in a firm s costs of production the link between a firm s production process and its total

More information

Which store has the lower costs: Wal-Mart or 7-Eleven? 2013 Pearson

Which store has the lower costs: Wal-Mart or 7-Eleven? 2013 Pearson Which store has the lower costs: Wal-Mart or 7-Eleven? Production and Cost 14 When you have completed your study of this chapter, you will be able to 1 Explain and distinguish between the economic and

More information

Firm Behavior and the Costs of Production

Firm Behavior and the Costs of Production Firm Behavior and the Costs of Production WHAT ARE COSTS? The Firm s Objective The economic goal of the firm is to maximize profits. Total Revenue, Total Cost, and Profit Total Revenue, Total Cost, and

More information

Cost schedules include the market value of all resources used in the production process.

Cost schedules include the market value of all resources used in the production process. By the end of this learning plan, you will be able to: Relate factor markets to production Assess the role price plays in a market economy Use marginal (Cost-Benefit) analysis in decision-making Cost schedules

More information

Costs in the Short Run: NOTE: Costs depend upon output!! Fixed Costs (FC) costs which do not change when a business changes its quantity of output.

Costs in the Short Run: NOTE: Costs depend upon output!! Fixed Costs (FC) costs which do not change when a business changes its quantity of output. Costs in the Short Run: NOTE: Costs depend upon output!! Fixed Costs (FC) costs which do not change when a business changes its quantity of output. Variable Costs (VC) costs which do change when a business

More information

Notes on Chapter 10 OUTPUT AND COSTS

Notes on Chapter 10 OUTPUT AND COSTS Notes on Chapter 10 OUTPUT AND COSTS PRODUCTION TIMEFRAME There are many decisions made by the firm. Some decisions are major decisions that are hard to reverse without a big loss while other decisions

More information

Chapter 4 Production, Costs, and Profit.notebook. February 03, Chapter 4: Production, Costs, and Profits Pages

Chapter 4 Production, Costs, and Profit.notebook. February 03, Chapter 4: Production, Costs, and Profits Pages Chapter 4: Production, Costs, and Profits Pages 91 112 business an enterprise that brings individual, financial resources, and economic resources together to produce a good or service for economic gain

More information

Practice Questions- Chapter 6

Practice Questions- Chapter 6 Practice Questions- Chapter 6 Harvey quit his job where he earned $45,000 a year. He figures his entrepreneurial talent or foregone entrepreneurial income to be $5,000 a year. To start the business, he

More information

The Production and Cost

The Production and Cost The Production and Cost The Role of the Firm l The firm is an economic institution that transforms factors of production into consumer goods. It l Organizes factors of production. l Produces goods and

More information

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.

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. 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. Profit is the firm s total revenue minus its total cost.

More information

5 FIRM BEHAVIOR AND THE ORGANIZATION OF INDUSTRY

5 FIRM BEHAVIOR AND THE ORGANIZATION OF INDUSTRY 5 FIRM BEHAVIOR AND THE ORGANIZATION OF INDUSTRY The s of Production 1 Copyright 2004 South-Western The Market Forces of Supply and Demand Supply and demand are the two words that economists use most often.

More information

The Firm s Objective. A Firm s Total Revenue and Total Cost. The economic goal of the firm is to maximize profits. A Firm s Profit

The Firm s Objective. A Firm s Total Revenue and Total Cost. The economic goal of the firm is to maximize profits. A Firm s Profit The s of Production Chapter 13 Copyright 2001 by Harcourt, Inc. The s of Production The Law of Supply: Firms are willing to produce and sell a greater quantity of a good when the price of the good is high.

More information

To do today: short-run production (only labor variable) To increase output with a fixed plant, a firm must increase the quantity of labor it uses.

To do today: short-run production (only labor variable) To increase output with a fixed plant, a firm must increase the quantity of labor it uses. To do today: short-run production (only labor variable) To increase output with a fixed plant, a firm must increase the quantity of labor it uses. Short-run production: only labor variable To increase

More information

= AFC + AVC = (FC + VC)

= AFC + AVC = (FC + VC) Chapter 13-14: Marginal Product, Costs, Revenue, and Profit Production Function The relationship between the quantity of inputs (workers) and quantity of outputs Total product (TP) is the total amount

More information

The Costs of Production Chapter 8!

The Costs of Production Chapter 8! The Costs of Production Chapter 8! Implicit Costs vs. Explicit Costs Implicit costs - the opportunity cost that is equal to what that has to be given up by a firm for using factors that it neither hires

More information

Chapter 9. Businesses and the Costs of Produc2on

Chapter 9. Businesses and the Costs of Produc2on Chapter 9 Businesses and the Costs of Produc2on Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Economic

More information

Production and Cost Analysis I

Production and Cost Analysis I CHAPTER 12 Production and Cost Analysis I Production is not the application of tools to materials, but logic to work. Peter Drucker McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All

More information

ECON 101 Introduction to Economics1

ECON 101 Introduction to Economics1 ECON 101 Introduction to Economics1 Session 6 The Concept of Elasticity I Lecturer: Mrs. Helen A. Seshie-Nasser, Department of Economics Contact Information: @ug.edu.gh College of Education School of Continuing

More information

Syllabus item: 42 Weight: 3

Syllabus item: 42 Weight: 3 1.5 Theory of the firm and its market structures - Production and costs Syllabus item: 42 Weight: 3 Definition: Total product (TP): The total output that a firm produces, using its fixed and variable factors

More information

Chapter 7 Producers in the Short Run

Chapter 7 Producers in the Short Run Chapter 7 Producers in the Short Run 7.1 What are Firms? Organisation of Firms 1) Single proprietorship Has one owner who is personally responsible for the firm s actions and debts 2) Ordinary partnership

More information

Edexcel (A) Economics A-level

Edexcel (A) Economics A-level Edexcel (A) Economics A-level Theme 3: Business Behaviour & the Labour Market 3.3 Revenue Costs and Profits 3.3.2 Costs Notes Formulae to calculate types of costs Total cost: This is how much it costs

More information

In the last session we introduced the firm behaviour and the concept of profit maximisation. In this session we will build on the concepts discussed

In the last session we introduced the firm behaviour and the concept of profit maximisation. In this session we will build on the concepts discussed In the last session we introduced the firm behaviour and the concept of profit maximisation. In this session we will build on the concepts discussed previously by examining cost structure, which is a key

More information

Contemporary Economics: An Applications Approach. Production. Production Function. Chapter 4: Production and the Costs of Production

Contemporary Economics: An Applications Approach. Production. Production Function. Chapter 4: Production and the Costs of Production Contemporary Economics: An Applications Approach By Robert J. Carbaugh 4th Edition Chapter 4: Production and the Costs of Production Copyright 2005 by South-Western, a division of Thomson Learning. All

More information

Week 5: The Costs of Production. 31 st March 2014

Week 5: The Costs of Production. 31 st March 2014 Week 5: The Costs of Production 31 st March 2014 WHAT ARE COSTS?! According to the Law of Supply:! Firms are willing to produce and sell a greater quantity of a good when the price of the good is high.!

More information

The Costs of Production

The Costs of Production The Costs of Production PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 1 What are Costs? Total revenue = amount a firm receives for the sale of its output Total cost = market

More information

Supply and demand are the two words that economists use most often.

Supply and demand are the two words that economists use most often. Chapter 13. The Costs of Production The Market Forces of Supply and Demand Supply and demand are the two words that economists use most often. Supply and demand are the forces that make market economies

More information

Production and Cost Analysis I

Production and Cost Analysis I CHAPTER 12 Production and Cost Analysis I Production is not the application of tools to materials, but logic to work. Peter Drucker McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All

More information

Costs of Production. Total Revenue - the amount a firm receives for the sale of its output.

Costs of Production. Total Revenue - the amount a firm receives for the sale of its output. Costs of Production Total Revenue - the amount a firm receives for the sale of its output. TR = P x Q Total Cost - the value of the inputs a firm uses in production. TC = FC + VC Profit is the firm s total

More information

HOMEWORK ECON SFU

HOMEWORK ECON SFU HOMEWORK 1998-2 ECON 103 - SFU the law of diminishing returns have on short-run costs? Be specific. (e) âwhen... And when marginal product is diminishing, marginal cost is rising.â Illustrate and... ECON

More information

Practice Exam 3: S201 Walker Fall with answers to MC

Practice Exam 3: S201 Walker Fall with answers to MC Practice Exam 3: S201 Walker Fall 2007 - with answers to MC Print Your Name: I. Multiple Choice (3 points each) 1. If marginal utility is falling then A. total utility must be falling. B. marginal utility

More information

CHAPTER-3 COST. (c) Average variable cost. (d) Opportunity costs. 1. Marginal cost is the cost:

CHAPTER-3 COST. (c) Average variable cost. (d) Opportunity costs. 1. Marginal cost is the cost: CHAPTER-3 COST (c) Average variable cost (d) Opportunity costs 1. Marginal cost is the cost: (a) Of the last unit production (b) Of the Marginal unit (c) Of the marginal efficient unit (d) Of the average

More information

This lesson was made possible with the assistance of the following organisations:

This lesson was made possible with the assistance of the following organisations: 23 MODULE 5: Agribusiness Management for Farmer Organisations LESSON 3: Decision Making Explicit and Implicit Costs TIME: 1 hour 36 minutes AUTHOR: Prof. Francis Wambalaba This lesson was made possible

More information

Decision Time Frames Pearson Education

Decision Time Frames Pearson Education 11 OUTPUT AND COSTS Decision Time Frames The firm makes many decisions to achieve its main objective: profit maximization. Some decisions are critical to the survival of the firm. Some decisions are irreversible

More information

Short-Run Costs and Output Decisions

Short-Run Costs and Output Decisions Chapter 8 Short-Run Costs and Prepared by: Fernando & Yvonn Quijano 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair Short-Run Costs and 8 Chapter Outline Costs in the

More information

2012 Pearson Addison-Wesley

2012 Pearson Addison-Wesley 11 OUTPUT AND COSTS What do General Motors, PennPower, and Campus Sweaters, have in common? Like every firm, They must decide how much to produce. How many people to employ. How much and what type of

More information

Whoever claims that economic competition represents 'survival of the fittest' in the sense of the law of the jungle, provides the clearest possible

Whoever claims that economic competition represents 'survival of the fittest' in the sense of the law of the jungle, provides the clearest possible Whoever claims that economic competition represents 'survival of the fittest' in the sense of the law of the jungle, provides the clearest possible evidence of his lack of knowledge of economics. -George

More information

The Theory and Estimation of Cost. Tools for Today s Decision Makers, 4/e By Paul Keat and Philip Young

The Theory and Estimation of Cost. Tools for Today s Decision Makers, 4/e By Paul Keat and Philip Young The Theory and Estimation of Cost Chapter 8 Managerial Economics: Economic Managerial Economics: Economic Tools for Today s Decision Makers, 4/e By Paul Keat and Philip Young The Theory and Eti Estimation

More information

ECON 101 Introduction to Economics1

ECON 101 Introduction to Economics1 ECON 101 Introduction to Economics1 Session 8 Consumer Choice Theory Lecturer: Mrs. Hellen A. Seshie-Nasser, Department of Economics Contact Information: haseshie@ug.edu.gh College of Education School

More information

THE COSTS OF PRODUCTION PART II

THE COSTS OF PRODUCTION PART II THE COSTS OF PRODUCTION PART II It is one of the greatest economic errors to put any limitation on production... We have not the power to produce more than there is the potential to consume. - Louis D.

More information

Production and Costs. Bibliography: Mankiw and Taylor, Ch. 6.

Production and Costs. Bibliography: Mankiw and Taylor, Ch. 6. Production and Costs Bibliography: Mankiw and Taylor, Ch. 6. The Importance of Cost in Managerial Decisions Containing costs is a key issue in managerial decisionmaking Firms seek to reduce the number

More information

OVERVIEW. 5. The marginal cost is hook shaped. The shape is due to the law of diminishing returns.

OVERVIEW. 5. The marginal cost is hook shaped. The shape is due to the law of diminishing returns. 10 COST OVERVIEW 1. Total fixed cost is the cost which does not vary with output. Total variable cost changes as output changes. Total cost is the sum of total fixed cost and total variable cost. 2. Explicit

More information

OUTPUT AND COSTS. Chapter. Key Concepts. Decision Time Frames

OUTPUT AND COSTS. Chapter. Key Concepts. Decision Time Frames Chapter 10 OUTPUT AND COSTS Key Concepts Decision Time Frames Firms have two decision time frames: Short run is the time frame in which the quantity of at least one factor of production is fixed. Long

More information

3. Definition of constant returns to scale: the property whereby long-run average total cost stays the same as the quantity of output changes.

3. Definition of constant returns to scale: the property whereby long-run average total cost stays the same as the quantity of output changes. 250 Chapter 13/The s of Production 3. Definition of constant returns to scale: the property whereby long-run average total cost stays the same as the quantity of output changes. 4. FYI: Lessons from a

More information

Understanding Markets

Understanding Markets Understanding Markets EC8005 Lecture 7 2014 Michael King 1 Revision: Consumer Theory 1. Qd = f(p,ps, Pc, Y, T, O) 2. Sd = f(p, T, I, G, Tx, Sy, O) 3. Types of goods 4. Shift along v s shift in demand/supply

More information

#20: & # 8, 9, 10) 7 P # 2&3 HW:

#20: & # 8, 9, 10) 7 P # 2&3 HW: AGENDA Tues 10/6 QOD #20: Caution! Curves Ahead Law of Diminishing Marginal Returns Costs of Production (Review HW Q#1,2,5,6) Short & Long Run (Q # 8, 9, 10) Partner Practice Ch 7 P # 2&3 HW: Prep for

More information

Classnotes for chapter 13

Classnotes for chapter 13 Classnotes for chapter 13 Chapter 13: Very important Focuses on firms production and costs Examines firm behavior in more detail (previously we simply looked at the supply curve to understand firm behavior)

More information

ECONOMICS STANDARD XII (ISC) Chapter 8: Cost and Revenue Analysis

ECONOMICS STANDARD XII (ISC) Chapter 8: Cost and Revenue Analysis ECONOMICS STANDARD XII (ISC) Chapter 8: Cost and Revenue Analysis Q1) Define the following: i. Money cost Money cost refers to money expenses which the firm has to incur in purchasing or hiring factor

More information

ECONOMICS ASSIGNMENT CLASS XII MICRO ECONOMICS UNIT I INTRODUCTION. 4. Is free medicine given to patients in Govt. Hospital a scarce commodity?

ECONOMICS ASSIGNMENT CLASS XII MICRO ECONOMICS UNIT I INTRODUCTION. 4. Is free medicine given to patients in Govt. Hospital a scarce commodity? ECONOMICS ASSIGNMENT CLASS XII MICRO ECONOMICS UNIT I INTRODUCTION 1. What is the Slope of PPC? What does it show? 2. When can PPC be a straight line? 3. Do all attainable combination of two goods that

More information

Faculty of Economics, Thammasat University EE 211 Principles of Microeconomics (3 credits)

Faculty of Economics, Thammasat University EE 211 Principles of Microeconomics (3 credits) Faculty of Economics, Thammasat University EE 211 Principles of Microeconomics (3 credits) Semester 1/2014 ----------------------------------------------------------------------------------------------

More information

Faculty of Economics, Thammasat University EE 211 Principles of Microeconomics (3 credits)

Faculty of Economics, Thammasat University EE 211 Principles of Microeconomics (3 credits) Lecture Time: Lecture Venue: Instructor: Faculty of Economics, Thammasat University EE 211 Principles of Microeconomics (3 credits) Semester 1/2015 ----------------------------------------------------------------------------------------------

More information

Chapter 11. Microeconomics. Technology, Production, and Costs. Modified by: Yun Wang Florida International University Spring 2018

Chapter 11. Microeconomics. Technology, Production, and Costs. Modified by: Yun Wang Florida International University Spring 2018 Microeconomics Modified by: Yun Wang Florida International University Spring 2018 1 Chapter 11 Technology, Production, and Costs Chapter Outline 11.1 Technology: An Economic Definition 11.2 The Short Run

More information

7 Costs. Lesson. of Production. Introduction

7 Costs. Lesson. of Production. Introduction Lesson 7 Costs of Production Introduction Our study now combines what we have learned about price from Lesson 5 with utility theory from Lesson 6 to allocate resources among cost factors. Consider that

More information

ECON 101 KONG Midterm 2 CMP Review Session. Presented by Benji Huang

ECON 101 KONG Midterm 2 CMP Review Session. Presented by Benji Huang ECON 101 KONG Midterm 2 CMP Review Session Presented by Benji Huang Chapter 5 Efficiency and Equity Benefit, Cost, Surplus Consumers (1) A consumer benefits from the consumption of a product this benefit

More information

Unit 5. Producer theory: revenues and costs

Unit 5. Producer theory: revenues and costs Unit 5. Producer theory: revenues and costs Learning objectives to understand the concept of the short-run production function, describing the relationship between the quantity of inputs and the quantity

More information

The Theory and Estimation of Cost. Chapter 7. Managerial Economics: Economic Tools for Today s Decision Makers, 5/e By Paul Keat and Philip Young

The Theory and Estimation of Cost. Chapter 7. Managerial Economics: Economic Tools for Today s Decision Makers, 5/e By Paul Keat and Philip Young The Theory and Estimation of Cost Chapter 7 Managerial Economics: Economic Tools for Today s Decision Makers, 5/e By Paul Keat and Philip Young The Theory and Estimation of Cost The Importance of Cost

More information

Theory of Produc-on. Lecture #4 Microeconomics

Theory of Produc-on. Lecture #4 Microeconomics Theory of Produc-on Lecture #4 Microeconomics Topics 1. How firms produce goods and services. 2. Produc7on in the short run. 3. Costs or factors of produc7on. 4. Economies of scale and produc7on in the

More information

SCHOOL OF ACCOUNTING AND BUSINESS BSc. (APPLIED ACCOUNTING) GENERAL / SPECIAL DEGREE PROGRAMME

SCHOOL OF ACCOUNTING AND BUSINESS BSc. (APPLIED ACCOUNTING) GENERAL / SPECIAL DEGREE PROGRAMME All Rights Reserved No. of Pages - 07 No of Questions - 08 SCHOOL OF ACCOUNTING AND BUSINESS BSc. (APPLIED ACCOUNTING) GENERAL / SPECIAL DEGREE PROGRAMME YEAR I SEMESTER I INTAKE VIII (GROUP B) END SEMESTER

More information

Production and Cost. This Is What You Need to Know. Explain the difference between accounting and economic costs and how they affect the determination

Production and Cost. This Is What You Need to Know. Explain the difference between accounting and economic costs and how they affect the determination Chiang_3E_CT_Micro_CH07_Layout 1 3/20/14 2:29 PM Page 175 7 Production and Cost Production and Cost Are Behind Decisions About Supply Having looked in the last chapter at what lies behind demand curves

More information

Practice EXAM 3 Spring Professor Walker - E201

Practice EXAM 3 Spring Professor Walker - E201 Practice EXAM 3 Spring 2009 - Professor Walker - E201 1. The theory behind short run production costs can be narrowed to an assumption that MC is expected to initially fall, but rise at larger levels of

More information

Short-Run Costs and Output Decisions

Short-Run Costs and Output Decisions Semester-I Course: 01 (Introductory Microeconomics) Unit IV - The Firm and Perfect Market Structure Lesson: Short-Run Costs and Output Decisions Lesson Developer: Jasmin Jawaharlal Nehru University Institute

More information

ECONS 101 Introduction to Economics 1

ECONS 101 Introduction to Economics 1 ECONS 101 Introduction to Economics 1 Session 2 Introduction II Lecturer: Mrs. Hellen Seshie-Nasser, Department of Economics Contact Information: haseshie@ug.edu.gh College of Education School of Continuing

More information

ECON 2100 Principles of Microeconomics (Summer 2016) The Production Process and Costs of Production

ECON 2100 Principles of Microeconomics (Summer 2016) The Production Process and Costs of Production ECON 21 Principles of Microeconomics (Summer 216) The Production Process and of Production Relevant readings from the textbook: Mankiw, Ch. 13 The of Production Suggested problems from the textbook: Chapter

More information

CONTENT TOPIC 3: SUPPLY, PRODUCTION AND COST. The Supply Process. The Role of the Firm 10/10/2016

CONTENT TOPIC 3: SUPPLY, PRODUCTION AND COST. The Supply Process. The Role of the Firm 10/10/2016 CONTENT TOPIC 3: SUPPLY, PRODUCTION AND COST - The factors of production - Combining factors of production: The law of returns - Costs of production: Short & Long Run - Deciding whether to produce in the

More information

Course informa-on. Review ques-ons for second midterm (April 4 th ) on the course web site: h>p:// courses.umass.edu/econ103h

Course informa-on. Review ques-ons for second midterm (April 4 th ) on the course web site: h>p:// courses.umass.edu/econ103h Course informa-on Review ques-ons for second midterm (April 4 th ) on the course web site: h>p:// courses.umass.edu/econ103h Second midterm will have only 20 mul-ple choice and again a choice of 1 out

More information

8 CHAPTER OUTLINE Costs in the Short Run Fixed Costs

8 CHAPTER OUTLINE Costs in the Short Run Fixed Costs e PART II I The Market System: Choices Made by Households and Firms e CASE FAIR OSTER PEARSON 2012 Pearson Education, Inc. Publishing as Prentice Hall PRINCIPLES OF MICROECONOMICS E L E V E N T H E D I

More information

ECONOMICS CHAPTER 8: COST AND REVENUE ANALYSIS Class: XII(ISC) Q1) Define the following:

ECONOMICS CHAPTER 8: COST AND REVENUE ANALYSIS Class: XII(ISC) Q1) Define the following: Q1) Define the following: ECONOMICS CHAPTER 8: COST AND REVENUE ANALYSIS Class: XII(ISC) 2017-2018 i. Money cost Money cost refers to money expenses which the firm has to incur in purchasing or hiring

More information

Understanding Production Costs. Principles of Microeconomics Module 4

Understanding Production Costs. Principles of Microeconomics Module 4 Understanding Production Costs Principles of Microeconomics Module 4 Firm Decisions: Short Run and Long Run A firm s decisions are grouped as: Short-run decisions time horizon over which at least one of

More information

UNIT5 TRANSPORT COST. Transport economics [TEC711S] By: Immanuel Nashivela

UNIT5 TRANSPORT COST. Transport economics [TEC711S] By: Immanuel Nashivela UNIT5 TRANSPORT COST Transport economics [TEC711S] By: Immanuel Nashivela outline In the course of this Unit, you will learn about: The theory of production Definitions of technical, cost and allocative

More information

ECON 102 Brown Final Exam (New Material) Practice Exam Solutions

ECON 102 Brown Final Exam (New Material) Practice Exam Solutions www.liontutors.com ECON 102 Brown Final Exam (New Material) Practice Exam Solutions 1. B A very large percent of their earnings comes from economic rent 2. B Any funds left, after everyone who has a claim

More information

Where are we? Second midterm on November 19. Review questions on th course web site. Today: chapter on perfect competition

Where are we? Second midterm on November 19. Review questions on th course web site. Today: chapter on perfect competition Where are we? Second midterm on November 19 Review questions on th course web site. Today: chapter on perfect competition Topic for the second paper: Pick a chapter in Ariely after Chapter 4 and compare

More information

Chapter 33: Terms of Trade

Chapter 33: Terms of Trade Chapter 33: Terms of Trade 1 The Terms of Trade The division of the gains from trade depends on the terms of trade. The terms of trade are measured by the ratio of the price of exports to the price of

More information

ECON 102 Kagundu Final Exam (New Material) Practice Exam Solutions

ECON 102 Kagundu Final Exam (New Material) Practice Exam Solutions www.liontutors.com ECON 102 Kagundu Final Exam (New Material) Practice Exam Solutions 1. A A large number of firms will be able to operate in the industry because you only need to produce a small amount

More information

Chapter 6 Costs and Choice

Chapter 6 Costs and Choice Chapter 6 Costs and Choice 6.0 Preliminaries Costs of production influence the prices of goods and services, the profitability, even the survival of business firms and the structure of markets and industries.

More information

WJEC (Wales) Economics A-level

WJEC (Wales) Economics A-level WJEC (Wales) Economics A-level Microeconomics Topic 1: Costs, Revenue and Profits 1.1 Costs, revenues and profits Notes The difference between the short run and the long run In the short run, the scale

More information

23 Perfect Competition

23 Perfect Competition 23 Perfect Competition Learning Objectives After you have studied this chapter, you should be able to 1. define price taker, total revenues, marginal revenue, short-run shutdown price, short-run breakeven

More information

MICRO EXAM REVIEW SHEET

MICRO EXAM REVIEW SHEET MICRO EXAM REVIEW SHEET 1. Firm in Perfect Competition (Long-Run Equilibrium) 2. Monopoly Industry with comparison of price & output of a Perfectly Competitive Industry 3. Natural Monopoly with Fair-Return

More information

TEST 3 J. Spraggon Student Number: November 21, 2003

TEST 3 J. Spraggon Student Number: November 21, 2003 Econ 1100 Name: TEST 3 J. Spraggon Student Number: November 21, 2003 This test consists of 9 pages, containing 42 multiple-choice questions. There will be 1 mark for each of the multiple choice questions.

More information

CASE FAIR OSTER PEARSON 2012 Pearson Education, Inc. Publishing as Prentice Hall

CASE FAIR OSTER PEARSON 2012 Pearson Education, Inc. Publishing as Prentice Hall PART II The Market System: Choices Made by Households and Firms PRINCIPLES OF MICROECONOMICS E L E V E N T H E D I T I O N CASE FAIR OSTER PEARSON 2012 Pearson Education, Inc. Publishing as Prentice Hall

More information

Theories of Returns. Total Product. Unit of workers

Theories of Returns. Total Product. Unit of workers Theories of Returns Production Function: It shows a mathematical relationship between input factors and the output. Production function may be of the short run or the long run. A rational producer always

More information

FINAL Examination Paper (COVER PAGE) Programme : Diploma in Quantity Surveying. Time : 8.00 am am Reading Time : 10 Minutes

FINAL Examination Paper (COVER PAGE) Programme : Diploma in Quantity Surveying. Time : 8.00 am am Reading Time : 10 Minutes FINAL Examination Paper (COVER PAGE) Session : January 2013 Programme : Diploma in Quantity Surveying Course : ECO1141 : Principles of Economics Date of Examination : April 30, 2013 Time : 8.00 am 10.10

More information

Assignment of Producer s Equilibrium and supply

Assignment of Producer s Equilibrium and supply Assignment of Producer s Equilibrium and supply Marks 16 2008-09(2) (3)set 1. Give one reason for a rightward shift in supply curve. (1) 2. Why is average total cost greater than average variable cost?

More information

AP Microeconomics Review Session #3 Key Terms & Concepts

AP Microeconomics Review Session #3 Key Terms & Concepts The Firm, Profit, and the Costs of Production 1. Explicit vs. implicit costs 2. Short-run vs. long-run decisions 3. Fixed inputs vs. variable inputs 4. Short-run production measures: be able to calculate/graph

More information

Economics 203: Intermediate Microeconomics I Lab Exercise #4

Economics 203: Intermediate Microeconomics I Lab Exercise #4 February 29, 2016 Economics 203: Intermediate Microeconomics I Lab Exercise #4 Section 1: Discussion: As the electronics industry has grown more mature and new technologies have been developed, the costs

More information

Teaching about Market Structures

Teaching about Market Structures Teaching about Market Structures Felix B. Kwan, Ph.D. Professor of Econ/Finance, Maryville University AP Econ Conference - FRB St. Louis June 17-19, 2015 Profits Foundational Concepts Some basic terms/concepts

More information

Costs: Introduction. Costs 26/09/2017. Managerial Problem. Solution Approach. Take-away

Costs: Introduction. Costs 26/09/2017. Managerial Problem. Solution Approach. Take-away Costs Costs: Introduction Managerial Problem Technology choice at home versus abroad: In western countries, firms use relatively capital-intensive technology. Will that same technology be cost minimizing

More information

short run long run short run consumer surplus producer surplus marginal revenue

short run long run short run consumer surplus producer surplus marginal revenue Test 3 Econ 3144 Name Fall 2005 Dr. Rupp 20 Multiple Choice Questions (50 points) & 4 Discussion (50 points) Signature I have neither given nor received aid on this exam Use this table to answer questions

More information

Microeconomics. More Tutorial at

Microeconomics.   More Tutorial at Microeconomics 1. Economists assume that the goal of the firm is to maximize A. total revenue B. total profit C. total costs D. total satisfaction 2. If a perfectly competitive firm produces 100 units

More information

ECO 2023 Principles of Microeconomics Fall 2013 Practice Test #2. 1. Which of the following are factors of production?

ECO 2023 Principles of Microeconomics Fall 2013 Practice Test #2. 1. Which of the following are factors of production? ECO 2023 Principles of Microeconomics Fall 2013 Practice Test #2 1. Which of the following are factors of production? A. Output in a production function. B. Productivity. C. Land, labor, capital, and entrepreneurship.

More information

UNIT5 TRANSPORT COST. Transport economics [TEC711S] By: Immanuel Nashivela

UNIT5 TRANSPORT COST. Transport economics [TEC711S] By: Immanuel Nashivela UNIT5 TRANSPORT COST Transport economics [TEC711S] By: Immanuel Nashivela outline In the course of this Unit, you will learn about: The theory of production Definitions of technical, cost and allocative

More information

AP Microeconomics Chapter 8 Outline

AP Microeconomics Chapter 8 Outline I. Learning Objectives In this chapter students should learn: A. Why economic costs include both explicit (revealed and expressed) costs and implicit (present but not obvious) costs. B. How the law of

More information

1.3. Levels and Rates of Change Levels: example, wages and income versus Rates: example, inflation and growth Example: Box 1.3

1.3. Levels and Rates of Change Levels: example, wages and income versus Rates: example, inflation and growth Example: Box 1.3 1 Chapter 1 1.1. Scarcity, Choice, Opportunity Cost Definition of Economics: Resources versus Wants Wants: more and better unlimited Versus Needs: essential limited Versus Demand: ability to pay + want

More information

Review Notes for Chapter Optimal decision making by anyone Engage in an activity up to the point where the marginal benefit= marginal cost

Review Notes for Chapter Optimal decision making by anyone Engage in an activity up to the point where the marginal benefit= marginal cost Review Notes for Chapter 5 1. Optimal decision making by anyone Engage in an activity up to the point where the marginal benefit= marginal cost Sunk costs are costs which must be borne regardless of future

More information