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 17 of 22
…
Table 2, ATC is the sum of
· average fixed cost (AFC)
· average variable cost (AVC)
…
AFC always declines as output increases, because the total fixed cost, here $3.00, is spread over a larger number of units
AVC typically increases as output increases because of diminishing marginal product.
At a low level of output such as 2 cups per hour ATC is very high, $1.90
Even though AVC is low, at 2 cups $.40 AFC is high, $1.50, because the $3.00 fixed cost is spread over only 2 units
…
Increasing quantity from 6 to 7 units
· AFC decreases by $0.07, from $0.50 to $0.43
· AVC increases by $0.10, from $0.80 to $0.90
· ATC rises by the difference of $0.03, from $1.30 to $1.33
Increasing quantity from 7 to 8 units
· AFC decreases by $0.05, from $0.43 to $0.38
· AVC increases by $0.10, from $0.90 to $1.00
· ATC rises by the difference of $0.05, from $1.33 to $1.38
…
The bottom of the U-shape ATC curve, $1.30, occurs at the 5~6 per hour units quantity.
This quantity is called the efficient scale of production.
If Conrad produces more or less than this amount, his ATC rises above the minimum of $1.30.
…
At less than 5 units levels of output
· ATC is higher than $1.30
· because the total fixed cost is spread over so few units
· decrease in AFC is more than increase in AVC
At more than 6 units levels of output
· ATC is higher than $1.30
· because decrease in AFC is less than increase in AVC
… …
efficient scale of production
seisan kōritsuteki kibo
生産効率的規模
Comments
Post a Comment