1 / 3

SESSION 7 : PRODUCTIVITY AND COSTS

SESSION 7 : PRODUCTIVITY AND COSTS. Talking Points.

jack
Download Presentation

SESSION 7 : PRODUCTIVITY AND COSTS

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. SESSION 7: PRODUCTIVITY AND COSTS Talking Points 1. Because consumers are largely price-takers—that is, individual consumers have no power over the market price—the demand side of the market is largely as described in Session 5. However, producers may not always be price-takers, so a more in-depth look at their behavior and supply is warranted. 2. Firms wish to maximize economic profits, which equal total revenues (the price of the output times the quantity of units sold, or P × Q) minus total costs (explicit costs plus implicit costs, which include normal profit). 3. Normal profit is the minimum amount required by the entrepreneur to continue to operate the business. It is essentially the opportunity cost of the entrepreneur. 4. The amount of output produced by a firm depends on the amount of inputs (resources) used and the productivity of those inputs.

  2. Session 7: Talking Points, Cont’d 5. The short run is defined as the production period when the quantity of at least one (usually capital) input is fixed or unchangeable. 6. Fixed inputs lead to diminishing returns from the variable inputs (i.e., falling additional output as the variable inputs are increased). 7. Total costs are the sum of a firm’s fixed costs (the cost of its fixed inputs, usually capital) and its variable costs (the cost of its inputs, usually workers and materials, which vary with the amount of output produced). 8. To maximize profits, a business should increase its output as long as the additional revenue earned exceeds the additional cost of producing another unit of output. 9. The average cost curve is a single firm’s supply curve (assuming it has no control over the price of its outputs or inputs).

  3. Session 7: Talking Points, Cont’d 10. The market supply curve is the sum of all the individual producers’ supply curves. 11. In the long run, all inputs are variable, so replication implies a constant average cost (i.e., a firm can double its output by simply doubling its inputs). 12. Economies of scale (“cost savings” from producing larger outputs) can lead to falling long-run average costs (LRAC) as output is expanded. 13. Two main reasons for economies of scale: a. switching to lower-cost mass production technologies and b. buying inputs in quantity at a discount.

More Related