Chapter 4: Production and the Costs of Production Contemporary Economics: An Applications Approach By Robert J. Carbaugh 1st Edition Chapter 4: Production and the Costs of Production

Short-run production function Production Functions Short-run production function Production table for block company Labor input Total product Marginal product (workers per day) (output per day) (output per day) 0 0 1 1,000 1,000 2 2,200 1,200 3 3,500 1,300 4 4,700 1,200 5 5,800 1,100 Carbaugh, Chap. 4

Short-run production functions (cont’d) Total product curve Marginal product curve Increasing marginal returns Diminishing marginal returns TP 5800 4700 1300 3500 1200 MP 1100 1000 2200 1000 Carbaugh, Chap. 4

Shifts in product curves Production Functions Shifts in product curves Increase in total product curve Increase in marginal product curve TP1 Total product Total product TP0 MP1 MP0 Carbaugh, Chap. 4

Hypothetical short-run cost schedules Average Costs Hypothetical short-run cost schedules Average total cost Total Cost Costs Total cost Total variable cost Average variable cost Total fixed cost 50 Marginal cost Carbaugh, Chap. 4

Hypothetical long-run average total cost curve Long-Run Costs Hypothetical long-run average total cost curve Cost per unit Economies of scale Diseconomies of scale Constant returns to scale LRATC Q1 Q2 Carbaugh, Chap. 4

Shifts in cost curves Changing Costs MC0 ATC0 MC1 ATC1 C0 C1 Initial minimum cost Cost per unit MC1 ATC1 C0 C1 Minimum cost after technological improvement, fall in resource prices or fall in taxes Carbaugh, Chap. 4