1. Copyright ©2003, South-Western College Publishing Contemporary Economics: An Applications Approach By Robert J. Carbaugh 2nd Edition Chapter 4: Production and the Costs of Production

2. Carbaugh, Chap. 4 2 Short-run production function Production Functions Labor inputTotal productMarginal product (workers per day)(output per day)(output per day)0 11,0001,000 22,2001,200 33,5001,300 44,7001,200 55,8001,100 Production table for block company

3. Carbaugh, Chap. 4 3 Short-run production functions (cont’d) Production Functions 5800 4700 3500 2200 1000 TP 1300 1200 1100 1000 MP Total product curve Marginal product curve Increasing marginal returns Diminishing marginal returns Total product Marginal product Labor input

4. Carbaugh, Chap. 4 4 Shifts in product curves Production Functions TP 1 MP 1 Increase in total product curveIncrease in marginal product curve Total product TP 0 Marginal product MP 0

5. Carbaugh, Chap. 4 5 Hypothetical short-run cost schedules Average Costs Total cost Costs Total fixed cost 50 Total variable cost Total Cost Average variable cost Average total cost Marginal cost

6. Carbaugh, Chap. 4 6 Hypothetical long-run average total cost curve Long-Run Costs Cost per unit Diseconomies of scale Constant returns to scale Economies of scale LRATC Q2Q2 Q1Q1

7. Carbaugh, Chap. 4 7 Shifts in cost curves Changing Costs Cost per unit Minimum cost after technological improvement, fall in resource prices or fall in taxes Initial minimum cost C0C0 C1C1 MC 0 ATC 0 MC 1 ATC 1