Chapter Fifteen: Production Costs

Types of Production Costs

Table 15.1: Gail’s Costs of Farming

The Production Function

Table 15.2: Corn Production Function

Figure 15.1: Corn Production Function Corn yields per acre increase as more nitrogen fertilizer is applied, but at a decreasing rate.

Table 15.3: Calculating Marginal Product

Figure 15.2: Total Product Curves with Constant and Increasing Marginal Returns A total product curve with constant marginal returns is a straight line sloping upward. In the case of increasing marginal returns, the total product curve becomes steeper as we move to the right.

Figure 15.3: A Total Product Curve with Increasing, Constant, and Decreasing Returns Many real-world production functions display increasing, constant, and decreasing marginal returns when we consider the full range of production levels.

Table 15.4: Fixed, Variable, and Marginal Costs

Figure 15.4: The Total Cost Curve for Corn A total cost curve shows the relationship between the total cost of production and the level of output.

Table 15.5: Marginal Cost of Corn Production

Figure 15.5: A Possible Pattern of Costs The graphs show the relationship between total and marginal cost curves. For many real-world enterprises, their marginal cost curve is U-shaped.

Figure 15.6: A Possible Pattern of Long-Run Average Costs Long-run average cost curves tend to be U-shaped, with a minimum and maximum efficient scale.