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 11 of 20
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Quantity of output produced is on the horizontal axis, from Table 2 column 1.
Total cost of production is on the vertical axis, from Table 2 column 2.
The total cost curve gets steeper as the quantity of output increases because of diminishing marginal product.
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From data on a firm's costs such as Table 2 we can derive several related cost measures useful for analyzing production and pricing decisions.
Table 2 is cost data for another small business, Conrad's Coffee Shop.
Column 1 shows the number of cups of coffee Conrad can produce per hour, from 0 to 10 cups.
Column 2 shows Conrad's total cost of producing coffee at each quantity.
Figure 3 is a Conrad's total-cost curve.
Quantity of coffee from column 1 is on the horizontal axis.
Total cost from column 2 is on the vertical axis.
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Conrad's total-cost curve becomes steeper as the quantity produced rises because of diminishing marginal product.
Conrad's total cost can be divided into two types, Table 3.
Fixed cost, column 3.
Variable cost, column 4.
Fixed cost
· does not vary with the quantity of goods produced
· is incurred even if the firm produces nothing
· includes rent paid for building
Variable cost changes as a firm changes quantity of production output.
Variable cost includes wages of hourly workers, coffee beans, milk, sugar, and paper cups.
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Column 4 shows Conrad's total variable cost at each level of production.
Variable cost is
· $0.00 if he produces nothing
· $0.30 if he produces 1 cup of coffee
· $0.80 if he produces 2 cups
· $12.00 if he produces 10 cups
Conrad’s total cost, column 2, is the sum of its fixed and variable costs.
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building rent
tatemono chinryō
建物賃料
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