LR & SR Cost Curves.ppt
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Transcript of LR & SR Cost Curves.ppt
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8/16/2019 LR & SR Cost Curves.ppt
1/41
King’s College
MBA – 2015
1King's MBA - 2015
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8/16/2019 LR & SR Cost Curves.ppt
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Short-run costs
Total cost
2King's MBA - 2015
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King's MBA - 2015
Output
(Q)
0
1
2
3
4
5
67
TFC
(Rs)
12
12
12
12
12
12
1212
Total costs for firm X
3
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King's MBA - 2015
TFC
Output
(Q)
0
1
2
3
4
5
67
TFC
(Rs)
12
12
12
12
12
12
1212
Total costs for firm X
4
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King's MBA - 2015
TFC
Output
(Q)
0
1
2
3
4
5
67
TFC
(Rs)
12
12
12
12
12
12
1212
TVC
(Rs)
0
10
16
21
28
40
6091
Total costs for firm X
5
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TVC
Output
(Q)
0
1
2
3
4
5
67
TFC
(Rs)
12
12
12
12
12
12
1212
TVC
(Rs)
0
10
16
21
28
40
6091
TFC
Total costs for firm X
6
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TVC
TFC
Total costs for firm X
7
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TVC
Output
(Q)
0
1
2
3
4
5
67
TFC
(Rs)
12
12
12
12
12
12
1212
TVC
(Rs)
0
10
16
21
28
40
6091
TFC
Total costs for firm X
8
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King's MBA - 2015
TVC
TFC
Output
(Q)
0
1
2
3
4
5
67
TFC
(Rs)
12
12
12
12
12
12
1212
TVC
(Rs)
0
10
16
21
28
40
6091
TC
(Rs)
12
22
28
33
40
52
72103
Total costs for firm X
9
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King's MBA - 2015
TC
Output
(Q)
0
12
3
4
5
67
TFC
(Rs)
12
1212
12
12
12
1212
TVC
(Rs)
0
1016
21
28
40
6091
TC
(Rs)
12
2228
33
40
52
72103
TVC
TFC
Total costs for firm X
10
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King's MBA - 2015
TC
TVC
TFC
Total costs for firm X
11
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Short-run costs
Marginal cost
= TC / Q
12King's MBA - 2015
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Deriving !rgin!" #$sts
Q TC MC
0 12 1 22
2 28
3 33
4 40
5 526 72
7 103
10 6
5
7
1220
31
QQ
%$sts (Rs)
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TC
Deriving !rgin!" #$sts
Q TC MC
0 12 1 22
2 28
3 33
4 40
5 526 72
7 103
10 6
5
7
1220
31
QQ
%$sts (Rs)
14King's MBA - 2015
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Q TC MC
0 12 1 22
2 28
3 33
4 40
5 526 72
7 103
10 6
5
7
1220
31
TC
TC & 12
Q & 1
QQ
%$sts (Rs) Deriving !rgin!" #$sts
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0
5
10
15
20
25
30
35
0 1 2 3 4 5 6 7
MC
QQ
%$sts (Rs) Deriving !rgin!" #$sts
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Short-run costs
Avrag cost
=TC / Q
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QQ
%$sts (Rs)
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Q TVC AVC
0 0 '
1 10 10
2 16 83 21 7
4 28 7
5 40 8
6 60 10
7 91 13
QQ
%$sts (Rs)
AFC
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3
Q TVC AVC
0 0 '
1 10 10
2 16 83 21 7
4 28 7
5 40 8
6 60 10
7 91 13
QQ
%$sts (Rs)
AFC
AVC
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Q TC ATC
0 12
1 22 22
2 28 143 33 11
4 40 10
5 52 104
6 72 12
7 103 147
QQ
%$sts (Rs)
AFC
AVC
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Q TC ATC
0 12
1 22 22
2 28 143 33 11
4 40 10
5 52 104
6 72 12
7 103 147
QQ
%$sts (Rs)
ATC
AFC
AVC
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Q TC MC
0 12
1 22
2 28 3 33
4 40
5 52
6 72
7 103
10
6
5 7
12
20
31
QQ
%$sts (Rs)
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MC
Q TC MC
0 12
1 22
2 28 3 33
4 40
5 52
6 72
7 103
10
6
5 7
12
20
31
QQ
%$sts (Rs)
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Q TC MC ATC
0 12
1 22
2 28 3 33
4 40
5 52
6 72
7 103
10
6
5 7
12
20
31
MC '
22
1411
10
104
12
147
QQ
%$sts (Rs)
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Q TC MC ATC
0 12
1 22
2 28 3 33
4 40
5 52
6 72
7 103
10
6
5 7
12
20
31
MC '
22
1411
10
104
12
147
QQ
%$sts (Rs)
ATC
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!"t#"t $Q%
& o s t s $ ' s %
AFC
AVC
MC
ATC
*
+
Average and marginal costs
27
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Long-run costs
(ong-r"n Avrag costs
=T& / )
28King's MBA - 2015
A i l l
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A typical long-run average cost curve
!"t#"t!
& o s t s
LAC
29
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Long-run average cost curve
!"t#"t!
& o s t s
LAC
Economies of Scale
30
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King's MBA - 2015!"t#"t!
& o s t s
LAC
Diseconomies of Scale
Long-run average cost curve
31
L t
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King's MBA - 2015!"t#"t!
& o s t s
LAC
Constant Returns to Scale
Long-run average cost curve
32
A i l l
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King's MBA - 2015!"t#"t!
& o s t s
LAC Economiesof scale
ConstantReturns to Scale
Diseconomiesof scale
A typical long-run average cost curve
33
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Long-run average and marginal
costs
!"t#"t!
& o s t s
LAC
LMC
Economies of Scale
34
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King's MBA - 2015!"t#"t!
& o s t s
LAC
LMC
Diseconomies of Scale
Long-run average and marginal
costs
35
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King's MBA - 2015!"t#"t!
& o s t s
LAC & LMC
Constant costs
Long-run average and marginal
costs
36
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King's MBA - 2015!"t#"t!
& o s t s
LMC
LAC
Initially economies of scale,then diseconomies of scale
Long-run average and marginal
costs
37
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Long-run costs
Re"!ti$ns,ip -et.een s,$rt'run
!n/ "$ng'run AC #urves
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Deriving long-run average cost curves:
factories of different size
SAC 3
& o s
t s
!"t#"t
!
SAC 4
SAC 5
5 !#t$ries
4 !#t$ries3 !#t$ries2 !#t$ries1 !#t$r+
SAC 1 SAC 2
39
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& o s
t s
!"t#"t
!
Deriving long-run average cost curves
40
Deriving long run average cost
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King's MBA - 2015
LAC
& o s
t s
! t t
!
Deriving long-run average cost
curves: choice of factory size
41