The company can't scale back by making steel in an oven.
A hospital uses machines for scans.
mini-MRI machines can't scale back the hos pital.
You'll need two workers, including yourself, to make five paddles.
The labor cost will be $100.
The total cost of producing five paddles per day is $200, or $40 per paddle, if you add the $100 cost of indivisible input.
The cost is higher than the average because you still need the same amount of capital in the smaller operation.
There are two possible reasons for higher average long-run costs in a smaller operation.
Labor specialization makes workers more productive because of continuity and repetition.
When we reduce the workforce each worker will become less specialized and perform a wider variety of production tasks.
The loss of specialization will lead to higher average cost.
A full day of work by one worker is needed to produce one paddle per day.
The single worker is less productive than the specialized workers in larger operations.
The average cost for a one-ddle operation is $150.
The cost of indivisible input is spread over more paddles.
There are economies associated with scaling up the firm's operation.
The minimum efficient scale for producing the good is one way to quantify scale economies in the production of a particular good.
If a firm starts out with too much.
The average cost doesn't decrease as output increases once the minimum efficient scale is reached.
The long-run aver scale can occur in a situation in which the age cost of production increases as output increases.
One of the problems of a large organization is that it requires several layers of management to coordinate the activities of different parts of the organization.
The higher the unit cost, the more meetings, reports, and administrative work the organization requires.
The long-run average-cost curve may be positively sloped if an increase in the firm's output requires additional layers of management.
Increasing input costs.
An expanding construction firm may have to pay higher wages to get more workers.
An expanding firm could be forced to hire less skilled workers.
A positively sloped long-run average-cost curve can be created by an increase in wages or a decrease in productivity.
Firms adopt various strategies to avoid diseconomies of scale.
3M, a global technology company that produces products ranging from Post-it notes to pharmaceuticals and telecommunications systems, is an example of a firm that adjusts its operations to avoid diseconomies of scale.
The production units are small to keep them flexible.
A production unit is broken apart when it gets too large.
The long-run average cost curve is negatively sloped for small quanti ties of output and relatively flat for a large range of output.
These curves are L-shaped.
The long-run cost curves of a wide variety of goods and services have the same shape according to other studies.
The age-cost curve is negatively sloped for small quantities of output because of economies of scale.
The average-cost curve becomes horizontal as output increases.
Over the horizontal portion of the cost curve, increases in inputs lead to increases in output, so the average cost doesn't change.
The slope of the short-run curve is positive for large quantities of output because of diminishing returns and decreasing labor productivity.
If a firm increases its output while at least one input is held fixed, diminishing returns eventually occur, pulling up the average cost of production.
Flexibility in choosing inputs is the difference between the short run and long run.
In the long run, a firm can increase all of its inputs by building a larger production facility.
The firm won't suffer from diminish ing returns.
The long-run average-cost curve can be negatively sloped or horizontal.
The long-run average-cost curve will be sloped for high output levels if firms experience diseconomies of scale.
The long-run average cost will not be as steep as the short-run curve because of diminishing returns.
The cost of producing the first fake killer whale is three times that of the second.
Producing two whales would cost $21,000, while three whales would cost $26,000, and so on.
The effects of indivisible inputs on the firm's cost curves are shown in this little story.
The mold can't be scaled down and still produce whales.
If he wants to cut his production from two whales per month to one, he needs the mold; he cannot simply produce half as many whales with half a mold or a mold that is half the size.
Sea lions off the Washington coast eat fish and cost $16,000 to produce the first whale.
The harvest of the commercial fishing industry is dependent on the firm having the mold.
As the number of whales increases, the average cost per plastic manufacturer who has offered to build a life-sized fiber whale decreases.
It would cost about $16,000 to make the first whale, including $11,000 for the mold, and $5,000 for labor and materials.
We've looked at the links between production technology and the cost of education.
The firm's short-run cost curves show how production costs vary with the quantity produced when at least one input is fixed.
The long-run average-cost curve shows how the average cost of production varies with the firm's flexibility in choosing inputs.
We look at production costs for several products in this part of the chapter.
There are scale economies in the production of electricity from wind.
The cost of a large wind turbine is more than the cost of a small one.
The scale economies occur because the cost of purchasing, installing, and maintaining a wind turbine increases less than the turbine's generating capacity.
The table shows the costs of a small turbine and a large turbine, each with an assumed lifetime of 20 years.
The purchase price of the large turbine is less than the purchase price of the small turbine.
The installation and operating and maintenance costs of the larger turbine are less than those of the smaller turbine.
The turbine with four times the generating capacity is less expensive than the smaller one.
The average cost per kilowatt-hour is $0.032 for the large turbine, compared to $0.065 for the smaller turbine.
A music video is a bundle of information.
The cost of making a first copy is the majority of the cost of producing an information.
The marginal cost of reproduction is small once the information is organized.
A tiny marginal cost is what an information good has.
The cost of putting images and sounds into a digital format is called the first-copy cost.
The typical music video has a first-copy cost of $223,000, which includes $28,000 for the people responsible for the script or treatment, $81,000 for 2 days of filming, $81,000 for editing, and $33,000 for other costs.
In the case of a music video distributed online, the marginal cost of making additional copies is zero.
The cost of a music video depends on how many people watch it.
The music video can be distributed online at no cost.
The average cost is $223 if 1,000 copies are distributed, and drops to $0.23 if one million copies are distributed.
As the fixed production cost is spread over a larger number of copies, the gap decreases.
The break-even quantity is 223,000 copies if consumers can download the music video for $1.
The cost of producing the first copy of a music video is very high, but the marginal cost of reproduction is relatively low, and for products distributed online, the marginal cost is zero.
In 1998, the cost of electricity produced with solar technology was less than the cost of electricity produced with nuclear technology.
The capital cost of a nuclear reactor increased from $3 billion in 2002 to $10 billion in 2010 as the unit cost of nuclear power increased.
The projected unit cost of electricity for a new nuclear facility is about $0.16 per Kwh.
The cost gap between solar and nuclear power has been eliminated, as the cost of solar power is roughly the same as the cost of nuclear power.
Chapter summary and problems are explored in this chapter.
Table 23.5 range of output because replication is an option, so doubling summarizes the definitions output will not be more than double long-run total cost.
All the problems are assignable in MyLab Economics.
If the marginal cost is equal to the average cost, we are at the mini cost.
The run is defined as a period for two different quantities.
Explain why the facility is there by using the oil industry as an example.
Consider a firm that has a short run.
The opportunity cost of driving for an average is included in a regular fixed variable total job.
He cuts 1,000 lawns per year.
Edward could make $12 an hour as a pedicur ist.
10 percent is the interest rate.
The interest rate for invested funds is cut in half.
The marginal cost curve is shaped like the workforce.
The firm is shaped like the letter.
The cost of indivisible inputs in the production of books is over $1,000 a day.
There are two pencil producers with the same pro total of $11 and the firm must spend a pose there.
The long-run average cost curve should be drawn for 10 to 500 workers.
Diminishing returns are better thaneconomies of scale.
Explain the difference between diseconomies of scale identical to the ones used by the other firms.
The marginal cost of production is constant.
Draw the firm's long-run average-cost curve for 1 Production and Cost in the Long Run to 10 units of output.
The long-run marginal-cost and average-cost curves can be drawn.
A new mold could be used to make fake killer whales.
The horizontal por has twice the cost of the original mold, but it cuts the curve.
The cost of the first whale produced with drops from 2 million pounds to 1 million pounds per the new mold compares to the cost of the original year.
The cost of producing the first fake killer whale is three times that of the second.
The wind turbine's size increases.
Goods such as a music video can haul freight.
The cost to operate and maintain it is $115,000.
50 million kilowatt-hours of electricity is generated.
The turbine's total cost and average cost per make the master will be stored on a hard drive kilowatt-hour.
A strike by wardrobe and makeup artists is thought to cost $2.
The cost of wardrobe and makeup increases by $17,000 if you draw the average-cost curve.
Hospital Cost Curves with emphasis on Measuring Patient Care 2.
The United States produced more than 400 million pounds in 2010.
The price went up from $1.44 per pound in 2005 to a peak of $1.85 per pound in 2007, and then went back down to $1.44 in 2010.
Without a net increase in the long-run price, the market accommodated a substantial increase in demand.
Mention the short-run and long-run effects structures.
MyLab Economics can help you study more efficiently.
Firms compete against one another for customers in different markets.
We look at a perfectly competitive market in this chapter.
Each farmer takes the market price as it is given.
There is no reason to reduce the price.
There are two other features of a perfectly competitive market.
The demand side price is given.
Firms can easily enter or exit the market with no barriers.
There are many people selling things.
There are many people buying.
The product is not different.
There are no obstacles to market entry.
Both buyers and sellers are willing to pay a certain price.
The model of perfect competition is realistic.
Firms have some flexibility over their prices.
When Target increases the price of DVDs, it will sell fewer of them, but the quantity sold will not drop to zero.
It's a good starting point for analyzing a firm's decisions because they are easy to understand.
The firm doesn't have to set a price, it just decides how much to produce.
It is possible to affect prices.
In later chapters, we discuss that scenario.
In this chapter, we see how firms use revenues and costs to decide how much output to produce.
The law of supply and the market supply curve are influenced by the output decisions of price-taking firms.
The economic logic behind the market supply curve and the law of supply is revealed by this chap ter.
There are two types of demand curves, the demand curve and the market demand curve.
The market demand curve shows structures.
The demand curve is horizontal.
A perfectly competitive firm can sell as much as it wants at the market price of $12, but if it raises its price even a penny, it will sell nothing.
The demand curve facing a monopolist is the market demand curve.
The firm-specific demand curve is horizontal in Panel b because a perfectly competitive firm takes the market price as given.
The majority of markets are between the extremes of monopoly and perfect competition.
The entire market is served by a single firm.
There are large barriers to market entry that lead to a monopoly.
Large economies of scale or a government policy that limits the number of firms can result in this.
Local phone service, cable TV, and electric power transmission are examples of monopolies that result from large economies of scale.
Drugs covered by patents, the selling of firewood in national parks, and the U.S. are some of the examples of monopolies that have been damaged by government policy.
There are no barriers to entering the market, so there are many firms and each one sells a slightly different product.
Coffee shops in your city compete for customers.
Many brands of toothbrushes are sold at your local grocery store, with slight differences in size, shape, color, and style.