Chapter 7 The Cost of Production Chapter Outline >Measuring Cost:Which Cost Matters? Cost in the Short Run >Long-Run Versus Short-Run Cost Curves >Production with Two Outputs-Economies of Scope Copyright by Caidonghong
Copyright by Caidonghong Chapter 7 The Cost of Production Chapter Outline ➢ Measuring Cost: Which Cost Matters? ➢ Cost in the Short Run ➢ Long-Run Versus Short-Run Cost Curves ➢ Production with Two Outputs—Economies of Scope
7.1 Measuring Cost:Which Cost Matters? >Accounting cost-Actual expenses plus depreciation charges 折旧费)for capital equipment. >Economic cost-Cost to a firm of utilizing economic resources in production,including opportunity cost. >Opportunity cost-Cost()associated with opportunities that are forgone()when a firm's resources are not put to their highest-value use. Copyright by Caidonghong
Copyright by Caidonghong 7.1 Measuring Cost: Which Cost Matters? ➢ Accounting cost-Actual expenses plus depreciation charges (折旧费) for capita1 equipment. ➢ Economic cost-Cost to a firm of utilizing economic resources in production, including opportunity cost. ➢ Opportunity cost—Cost(代价) associated with opportunities that are forgone(放弃) when a firm’s resources are not put to their highest-value use
▣A sunk cost(沉设成本)is an expenditure that has been made and cannot be recovered(挽▣). After it has been incurred(蒙受)，it should be ignored when making future economic decisions. Copyright by Caidonghong
Copyright by Caidonghong ❑ A sunk cost (沉没成本) is an expenditure that has been made and cannot be recovered (挽回). After it has been incurred (蒙受), it should be ignored when making future economic decisions
Total cost (TC)-Total economic cost of production,consisting of fixed and variable costs,which can be divided into fixed cost and variable cost. In the short run,one or more of the firm's inputs are fixed. Fixed cost(FC)-Cost that does not vary with the level of output. Variable cost (VC)-Cost that varies as output varies. Copyright by Caidonghong
Copyright by Caidonghong ❑ Total cost (TC) - Total economic cost of production, consisting of fixed and variable costs, which can be divided into fixed cost and variable cost. In the short run, one or more of the firm'sinputs are fixed. ❑ Fixed cost(FC)-Cost that does not vary with the level of output. ❑ Variable cost (VC)-Cost that varies as output varies
7.2 Cost in the Short Run >A firm's marginal cost(MC)is the additional variable cost associated with each additional unit of output. MC=△VC/△Q=△TC/△Q >Average total cost (ATC)-Firm's total cost divided by its level of output. >Average fixed cost (AFC)-Fixed cost divided by the level of output. >The average variable cost(AVC)is the total variable cost divided by the number of units of output. Copyright by Caidonghong
Copyright by Caidonghong 7.2 Cost in the Short Run ➢ A firm's marginal cost(MC) is the additional variable cost associated with each additional unit of output. MC = △VC/ △Q = △TC/△Q ➢ Average total cost (ATC)-Firm’stota1 cost divided by its level of output. ➢ Average fixed cost (AFC)-Fixed cost divided by the level of output. ➢ The average variable cost(AVC)is the total variable cost divided by the number of units of output