chapter_7 The Cost of Production 平狄克微观英文版教材.ppt

Chapter 7;Topics to be Discussed;Topics to be Discussed;Introduction;Introduction;An Example A firm owns its own building and pays no rent for office space Does this mean the cost of office space is zero?;Sunk Cost Expenditure that has been made and cannot be recovered Should not influence a firm’s decisions.;An Example A firm pays $500,000 for an option to buy a building. The cost of the building is $5 million or a total of $5.5 million. The firm finds another building for $5.25 million. Which building should the firm buy?;Choosing the Locationfor a New Law School Building;Northwestern University Law School 3) Choosing a Site Land owned in Chicago Must purchase land in Evanston Chicago location might appear cheaper without considering the opportunity cost of the downtown land (i.e. what it could be sold for);Northwestern University Law School 3) Choosing a Site Chicago location chosen--very costly Justified only if there is some intrinsic values associated with being in Chicago If not, it was an inefficient decision if it was based on the assumption that the downtown land was “free”;Total output is a function of variable inputs and fixed inputs. Therefore, the total cost of production equals the fixed cost (the cost of the fixed inputs) plus the variable cost (the cost of the variable inputs), or…;Fixed Cost Does not vary with the level of output Variable Cost Cost that varies as output varies;Fixed Cost Cost paid by a firm that is in business regardless of the level of output Sunk Cost Cost that have been incurred and cannot be recovered;Personal Computers: most costs are variable Components, labor Software: most costs are sunk Cost of developing the software;Pizza Largest cost component is fixed;A Firm’s Short-Run Costs ($);Cost in the Short Run;Cost in the Short Run;Cost in the Short Run;Cost in the Short Run;Cost in the Short Run;Cost in the Short Run;Cost in the Short Run;Cost in the Short Run;Cost in the Short Run;Cost in the Short Run;A Firm’s Shor