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Global Economic/ Economic for Business. (Chapter 9 Costs of production,…
Global Economic/ Economic for Business.
Chapter 9
Costs of production
Opportunity cost: the cost measured in terms of next best alternative forgone
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Opportunity cost: cost mesured in terms of next best alternatives forgone.
Implicit cost: the cost does not involve a direct payment of money to a third party, but involve a sacrifice of some alternative.= what is unseen; money that would have come in to the firm but never did. =
Explicit cost: the payments of outside suppliers of inputs. Ex: Electricity = what is seen; money leaving the firm to purchase inputs from non-owners of the firm.
Sunk cost: cost that cannot be retuned.
Replacement cost: what the firm have to pay to replace factors currently owns.
Historica cost: the original amount the firm paid for factors that owned now.
The production in short run.
Fixed cost: an input that can't be increased in Supply within given time period.
Variable cost: an input that can increase the supply within given time.
Short Run: the period of time which at lease one factor is fixed.
The law of diminishing demands: as you continue to add variable recourse the addition output will eventually decrease.
Long Run: the period of time which at all factors are variable. Ex when the firm get too huge I need extra managers, which it was fixed at the first place.
The production in long Run
Economic of scale
When :arrow_up: in scale of production leads to :arrow_down: cost.
:arrow_up:return on scale = :arrow_up: Total cost = :arrow_down: Average cost = more produced
External economic of scale: when a firm's cost per unit of output decrease as he size of the whole industry grows.
Industry's infrastructure: the network of supply agents communications, skills, training facilities, distribution, channels, specialized financial services, etc.
External diseconomies of scale: when a firm's cost per unit of output increase as he size of the whole industry grows.
Costs in the Short Run
Variable cost (VC or TVC): the total cost that is varying within the amount of output produced.
Total cost: FC + VC
Fixed cost(FC or TFC ): the total cost that is do not vary with the amount of output produced.
Average fixed cost(AFC) = TFC/ Q
Average total cost (AC) = TC/ Q = AVC+ AVC
Average vaiable cost(AVC) = TVC/ Q
Marginal cost (MC)= Difference of TC/ Difference of output Q
Cost in Long Run
Long run average cost (LRAC)
chapter 10 Revenue and profit
Chapter 20th reasons for government to intervention in the market.
Markets and the role of government
Government intervention and social objects
social efficiency:
production and assumption at the point where marginal social benefit (MSB) = to marginal social cost ( MSC)
Equity: The fair distribution of society's resources.
Type of market failure
Market Power
Deadweight loss under monopoly
: the reduction of total surplus below the maximum mount that is possible.
Producers surplus: the difference between the minimum required for a firm to supply a good and the price that actually paid
Consumers surplus: the difference between the maximum a person would have been prepared to pay a good, over what that person actually pays.
Externalities:
cost or benefits of consumption experienced by consumers directly involved int he transaction. they are known in the (third party)/(spillover).
External benefits : benefits from production experienced by costumers directly involved in transaction.
External cost : cost of consumption borne by consumers directly involved in the transaction.
Social benefits: private benefits + consumption externalities.
Social cost: private benefits + externalities.
Consubtion externalities:spill over effects on other people of consumers consumption.
Production externalities:spill over effects on other people of firms production.
Government intervention in the market.
