Production Costs in Short Run vs. Long Run. Производственные затраты в краткосрочном и долгосрочном периоде.
The relationship between inputs and output is a producer’s production function. The long run is the time period in which all inputs can be varied. The short run is the time period in which at least one input is fixed.
TC=VC+FC ATC=AVC+AFC
The marginal product of an input is the additional quantity of output that is produced by using one more unit of that input. There are diminishing returns to an input when an increase in the quantity of that input, holding the levels of all other inputs fixed, leads to a decline in the marginal product of that input.
T
he
total
cost of
producing a given quantity of output is the sum of the fixed cost and
the variable cost of producing that quantity of output. The total
cost curve becomes
steeper as more output is produced due to diminishing returns.
Average total cost, often referred to simply as average cost, is total cost divided by quantity of output produced. A U-shaped average total cost curve falls at low levels of output, then rises at higher levels.
I
ncreasing
output has two opposing effects on average total cost: The
spreading effect:
the larger the output, the greater the quantity of output over which
fixed cost is spread, leading to lower the average fixed cost. The
diminishing returns effect:
the larger the output, the greater the amount of variable input
required to produce additional units leading to higher average
variable cost.
At the minimum-cost output, average total cost is equal to marginal cost.
The long-run average total cost curve shows the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output.
There are increasing returns to scale (economies of scale) when long-run average total cost declines as output increases. There are decreasing returns to scale (diseconomies of scale) when long-run average total cost increases as output increases. There are constant returns to scale when long-run average total cost is constant as output increases.
The Model of Perfect Competition. Модель совершенной конкуренции.
A
perfectly
competitive market
is a market in which all market participants are price-takers.
A price-taking producer
is a producer whose actions have no effect on the market price of the
good it sells. A
price-taking consumer
is a consumer whose actions have no effect on the market price of the
good he or she buys.
F
or
an industry to be perfectly competitive, it must contain many
producers, none of whom have a large market
share.
An industry can be perfectly competitive only if consumers regard the
products of all producers as standardized
product.
There is free
entry and exit into
and from an industry when new producers can easily enter into or
leave that industry. The optimal
output rule says
that profit is maximized by producing the quantity of output at which
the marginal
cost
of the last unit produced is equal to its marginal
revenue.
The price-taking firm’s optimal output rule says that a price-taking firm’s profit is maximized by producing the quantity of output at which the marginal cost of the last unit produced is equal to the market price. If TR > TC, the firm is profitable. If TR = TC, the firm breaks even. If TR < TC, the firm incurs a loss. The break-even price of a price-taking firm is the market price at which it earns zero profits. At P=min ATC – breaks even and no entry/exit in long-run. At P=min AVC – shout-down price and indifference to producing in short-run.
There is a short-run market equilibrium when the quantity supplied equals the quantity demanded, taking the number of producers as given. A market is in long-run market equilibrium when the quantity supplied equals the quantity demanded, given that sufficient time has elapsed for entry into and exit from the industry to occur.
Thus, 1) In a perfectly competitive industry in equilibrium, the value of marginal cost is the same for all firms; 2) In a perfectly competitive industry with free entry and exit, each firm will have zero economic profits in long-run equilibrium; 3) The long-run market equilibrium of a perfectly competitive industry is efficient: no mutually beneficial transactions go unexploited.