1. 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

2. 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

3. 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

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

5. 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

6. 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

7. 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