PrefaceAll businesses have a cost when they produce the goods and services they sell, and the cost of the enterprise is a key determinant of production and pricing decisions. This will lay the groundwork for the subsequent discussion of the industrial organization-how the industrial organization studies the price and quantity decisions of the enterprises depend on the market conditions they face.
What is costWe consider a pastry factory.
total profit, total cost and profitThe amount of money an enterprise obtains from selling its products (pastries) is called
gross income (total revenue)。 The amount of money the enterprise pays for the purchase of inputs (flour, sugar, workers, ovens, etc.)
Total costs。
profit (Profit)Is the total revenue of the enterprise minus its total cost. Profit = Total revenue-Total cost an enterprise's goal is to profit as much as possible.
as cost of opportunity costThe cost to economists and accountants is inconsistent. Accountants can only see
explicit cost (explicit costs), which is the cost of investment in the money needed for corporate spending. And economists will also calculate
hidden costs (implicit costs), which is the cost of investment that does not require corporate spending money. Opportunity cost is explicit cost + hidden cost. An economist will take the abandoned income as a cost because it will affect the bakery owner's decision to make in his pastry business. For example, if the pastry maker's work as a programmer increases from $100 per hour to $500, she will think that the cost of operating the pastry business is too high and that she chooses to close the factory to become a full-time computer programmer.
economic profits and accounting profitsEconomists weigh the corporate
economic profit (economic profit), that is, the total profit of the enterprise minus the total opportunity cost (overt and implicit) of the goods and services sold in the production. Accountants weigh the business
Accounting profit (accounting profit), that is, the total income of the enterprise is only minus the explicit cost of the enterprise.
Economic profit is an important concept because it is the motive of the enterprise to supply certain goods and services, and the enterprise that obtains the positive economic profit will continue to operate. It compensates for all opportunity costs and leaves some revenue as a reward to the business owner.
Production and cost
production functionProduction functions (production function) are used to denote the relationship between the amount of input produced for an item and the output of the item. The production function of a pastry factory is as follows:
marginal yield (marginal product)Is the increase in output caused by an increase in the unit input. It can be seen that the marginal production of workers decreases as the number of workers increases. This feature is known as marginal yield decrement (diminishing marginal product). Starting when only a handful of workers are employed, they are more likely to use the equipment in the production floor. As the number of workers increases, more workers work with others to use the equipment and in more crowded conditions. In the end, the workshops were so crowded that people began to obstruct each other, so when hiring more workers, each additional worker contributed less to the production of pastries.
from production function to total cost curveFrom the production function can reflect the production of goods required for the relationship between the cost and production, such as.
The total cost curve is an important tool in the analysis of enterprise behavior.
various metrics of costWe take the coffee shop Conrad, for example, whose total cost curve is similar to the total cost curve of the pastry shop above.
fixed costs and variable costsThe total cost of Conrad is divided into two categories. Some costs do not change with the change in production, called
Fixed Cost (costs)。 The fixed cost is the cost that occurs even if the enterprise does not produce at all. For example, any rent she wants to pay and the salary of a full-time employee who has to pay the wages. Some of the company's costs change with the number of enterprises, called
variable cost (variable costs)。 The variable cost of Conrad includes the cost of coffee beans, milk, sugar and paper cups. Similarly, if conard have to hire more people to produce more coffee, these workers ' salaries are also variable costs.
average cost and marginal costTotal cost divided by yield is called
average total cost (average)。 As the total cost is the sum of fixed and variable costs, the average total cost can be expressed as the sum of the average fixed cost and the average variable cost.
Average fixed costs (average fixed cost)Is the fixed cost divided by the yield,
average can be converted to Ben (average variable cost)Is the variable cost divided by the yield. An increase in the total cost of an enterprise's production of one unit of output is called
marginal costs (marginal cost)。 The average cost tells us that if the total cost is evenly distributed across all the units produced, the cost of a common unit of the product. Marginal cost tells us that the total cost change caused by the production of one unit of product.
cost curve and its shapeRepresents the cost curve of a Conrad coffee shop. The graph shows four curves: Average total cost (ATC), average fixed cost (AFC), average available (AVC), and marginal cost (MC).
- Incremental marginal cost: When Conrad produces a small amount of coffee, his workers are few and many devices are not being exploited. Because he can easily put these unused resources into use, an additional worker's marginal production is very large, and an additional cup of coffee is marginal cost is very small. As production increases gradually, an additional worker's marginal production is small, and the marginal cost of an extra cup of coffee is high.
- U-shape average total cost: The average total cost curve of the Conrad is U-shaped, because the average fixed cost decreases rapidly at first because of the increase in production, and the latter average total cost is pulled up by marginal cost. The bottom of the U-shaped curve corresponds to the output that minimizes the average total cost. This output is sometimes referred to as the effective size of the enterprise (efficient scale).
- The relationship between marginal cost and average total cost: As long as the marginal cost is less than the average total cost, the average total cost decreases, as long as the marginal cost is greater than the average total cost, the average total cost increases. So the marginal cost curve intersects with the average total cost curve at the effective scale point.
A typical cost curveThe actual business situation is usually more complicated than the above. In many enterprises, the marginal production begins to decline immediately after the first worker is hired. Depending on the production process, the second or third worker may have a higher marginal yield than the first because a team of workers can be divided and work more efficiently than a worker. Enterprises with this mode of production will undergo a period of marginal production increase before the marginal production decreases.
relationship between short-and long-term average costs
relationship between short term and long-term average total costShort-term inflexible, and long-term flexibility. If production is to be increased, the short-term average total cost is constrained by the rapid increase of marginal cost, while the long-term average total cost curve is short-term and much smoother.
Economies of scale and economies of scaleThe long-term average total cost curve tells us how the cost varies with the size of an enterprise's operations-that is, sizes. When the long-term average total cost decreases with the increase of production, it can be said that there
economies of scale (economies of scales)。 When the long-term average total cost increases with the increase of production, it can be said that there
Scale is not economical (diseconomies of scales)。 When the long-term average total cost does not change with the production change, it can be said that there
scale gain unchanged (constant returns to scales)。 What would cause economies of scale or economies of scale? Economies of scale arise because higher levels of production allow specialization among workers, and specialization can make workers more proficient in a particular job. For example, if Ford employs a large number of workers and produces a large number of cars, it can use modern production operations to reduce costs. Economies of scale are due to the fact that any large organization has a solidCoordination Issues。 The more cars Ford produces, the larger the management team, and the less efficient the managers are in lowering costs.
Microeconomics (13): Corporate Behavior and industrial organization-production costs
