December 20, 2011
Chapter 8: Production and Cost
Section 1: Start Up: Street Cleaning Around the World
In the world today Americans seek the easy way out by means of production. In the midst of our capital we use more advances rather than actual physical labor. In this chapter we see why firms make the production choices they do and how their costs affect their choices. We will apply the marginal decision rule to the production process and see how this rule ensures that production is carried out at the lowest cost possible. We examine the nature of production and costs in order to gain a better understanding of supply. We thus shift our focus to firms, organizations that produce goods and services. In producing goods and services, firms combine the factors of production—labor, capital, and natural resources—to produce various products.
Section 2: Production Choices and Costs: The Short Run
The short run in this microeconomic context is a planning period over which the managers of a firm must consider one or more of their factors of production as fixed in quantity.
* The Short-Run Production Function:
A firm uses factors of production to produce a product. The relationship between factors of production and the output of a firm is called a production function our first task is to explore the nature of the production function.
* Total, Marginal, and Average Products
A total product curve shows the quantities of output that can be obtained from different amounts of a variable factor of production, assuming other factors of production are fixed.
We measure the slope of any curve as the vertical change between two points divided by the horizontal change between the same two points. The slope of the total product curve for labor equals the change in output (ΔQ) divided by the change in units of labor (ΔL):
Slope of the total product curve = ΔQ/ΔL
The amount by which output rises with an additional unit of a... [continues]
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