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Chapter 7

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Chapter 7

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  1. Chapter 7 Costs

  2. Table 7.01 Variation of Short-Run Cost with Output

  3. (a) Figure 7.01 Short-Run Cost Curves Cost, $ 400 C VC 27 A 1 216 20 1 B 120 48 F 0 2 4 6 8 10 Quantity, q , Units per day (b) Cost per unit, $ 60 MC AC a 28 27 AVC b 20 8 AFC 0 2 4 6 8 10 Quantity, q , Units per day

  4. Figure 7.02 Variable Cost and Total Product of Labor Quantity, q , Total product of labor, Units per day Variable cost 13 10 6 5 1 0 5 20 24 46 77 25 100 120 230 385 L , Hours of labor per day VC = wL , Variable cost, $

  5. Application Short-Run Cost Curves for a Printing Firm Cost, kroner 50 MC 40 30 AC AVC 20 10 AFC 0 100 200 300 q , Units per year

  6. Table 7.02 Effect of a Specific Tax of $10 per Unit on Short-Run Costs

  7. Figure 7.03 Effects of a Specific Tax on Cost Curves Costs per unit, $ a b MC = MC + 10 80 b MC $10 a b AC = AC + 10 37 b $10 AC 27 0 5 8 10 15 q , Units per day

  8. Solved Problem 7.1 Costs per unit, $ C M / a = AC AC + b q / q b AC q q q , Units per day b a

  9. Table 7.03 Bundles of Labor and Capital that Cost the Firm $100

  10. Figure 7.04 A Family of Isocost Lines K , Units of capital per year $150 = 15 — — — $ 10 $100 e = 10 — — — $ 10 d c $50 = 5 — — — $10 b $ 50 isocost $100 isocost $150 isocost a $50 $100 $150 = = = — — — 10 — — — 20 — — — 30 $ 5 $ 5 $ 5 L , Units of labor per year

  11. Figure 7.05 Cost Minimization K , Units of q = 100 isoquant capital per year 3,000-kr isocost y 303 2,000-kr isocost 1,000-kr isocost x 100 z 28 0 24 50 116 L , Units of labor per year

  12. Application Rice Milling on Java K , Units of capital per year 80 Large bulk facility 70 60 50 Small bulk facility 40 Large rice mill 30 20 Small rice mill 10 Isoquant Hand pounding 2 1 C C isocost isocost 0 10 20 30 40 50 L , Workers per year

  13. Figure 7.06 Change in Factor Price K , Units of q = 100 isoquant capital per year Original isocost, 2,000 kr New isocost, 1,032 kr x 100 v 52 0 50 77 L , Workers per year

  14. Figure 7.07a Expansion Path and Long-Run cost Curve (a) Expansion Path K , Units of capital per year 4,000-kr isocost 3,000-kr isocost Expansion path 2,000-kr isocost z 200 y 150 x 100 200 isoquant 150 isoquant 100 isoquant 0 50 75 100 L , Workers per year

  15. Figure 7.07b Expansion Path and Long-Run cost Curve (b) Long-Run Cost Curve Long-run cost curve C , Cost, kroner 4,000 Z 3,000 Y 2,000 X 0 100 150 200 q , Units per year

  16. (a) Cost Curve Figure 7.08 Long-Run Cost Curves Cost, $ C q * q , Quantity per day (b) Marginal and Average Cost Curves Cost per MC unit, $ AC q * q , Quantity per day

  17. Table 7.04 Returns to Scale and Long-Run Costs

  18. Table 7.05 Shape of Average Cost Curves in Canadian Manufacturing

  19. Application Average Cost of Cement Firms Average cost, £ 7 6 5 4 AC 0 0.5 1.0 1.5 2.0 2.5 3.0 3.3 q , Cement, million tons per year

  20. Figure 7.09 Long-Run Average Cost as the Envelope of Short-Run Average Cost Curves Average cost, $ LRAC 3 SRAC 2 SRAC 1 3 SRAC SRAC b 12 d 10 a c e 0 q q q , Output per day 1 2

  21. Application (a) Long-Run Cost Curves in Printing and Oil Pipelines (a) Norwegian Printing Firm Cost, kroner 40 1 SRAC 2 SRMC 1 SRMC 30 2 SRAC 20 = LRAC LRMC 10 0 200 600 1,200 q , Output per year

  22. Application (b) Long-Run Cost Curves in Printing and Oil Pipelines (b) Oil Pipelines Cost per barrel-mile 150 100 8 " SRAC 10 " SRAC 12 " SRAC 50 16 " SRAC 20 SRAC " 26 " SRAC SRAC " 40 10 LRAC 0 10 20 40 100 200 400 1000 2000 Thousand barrels per day

  23. Application Choosing an Ink-Jet or Laser Printer Cost, Cents per page 9 SRAC of laser printer 8 7 6 5 SRAC of ink-jet printer LRAC 0 16,500 33,000 q , Pages

  24. Figure 7.10 Long-Run and Short-Run Expansion Paths K , Capital per year 4,616 kr Long-run expansion path 4,000 kr 2,000 kr z 200 Short-run y x expansion path 100 200 isoquant 100 isoquant 0 50 100 159 L , Workers per year

  25. Figure 7.11a Learning by Doing (a) Learning by Doing on C-141 Aircraft Labor costs per plane, $ 500 400 300 200 100 Average labor cost 0 50 100 150 200 250 C-141 planes

  26. Figure 7.11b Learning by Doing (b) Economies of Scale and Learning by Doing Average cost Economies of scale A B Learning by doing C b 1 AC 2 AC c 3 AC q q q 1 2 3 q , Output per period

  27. Figure 7.12 Joint Production Mushrooms, Pints per day 8 6 1 PPF 2 PPF 0 4 6 Wild strawberries, Pints per day