As posted on Facebook...
Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 5 Firm Behavior and the Organization of Industry
Chapter 13 of 36 The Costs of Production
Section 10 of 20
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The cost of Caroline's factory is fixed at $30 per hour, e.g. rent and maintenance, this is the same regardless of number of workers and quantity of production.
The cost of a worker is $10 per hour.
With 1 worker, her total cost is $40 per hour.
With 2 workers, her total cost is $50 per hour.
With 6 workers, her total cost is $90 per hour.
The table shows how the number of workers Caroline hires is related to
· column 2 the quantity of cookies she produces
· column 6 her total cost of production
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For Caroline’s production and pricing decisions, the most important relationship is between these two columns 2 and 6.
Figure 2 panel (b) total-cost curve graphs data of columns 2 and 6
· quantity produced on the horizontal axis
· total cost on the vertical axis
Production function curve panel (a) and total-cost curve panel (b) are two views of the same situation
· production function curve (a) gets flatter as production increases
· total-cost curve (b) gets steeper as production increases
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The slope changes in both occur for the same reason: diminishing marginal product.
Production function, panel (a), quantity of output and number of workers graphed
· high production of cookies means Caroline's kitchen is crowded with workers
· because the kitchen is crowded, each additional worker adds less to production
· as more workers are added the production curve flattens
Total-cost curve, panel (b), quantity of output and total cost graphed
· as the kitchen becomes more crowded
· producing an additional cookie requires additional labor, total cost goes up more than production quantity
· as the quantity produced increases the total-cost curve steepens
… …
flattens, steepens
heitanka, kyūjunka
平坦化、急峻化
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