# Friday, September 23, 2011

The Costs of Production

OBJECTIVES

Students shall be able to

1. define economic cost,

2. define explicit cost and implicit cost,

3. differentiate between explicit and implicit costs,

4. define normal profit and economic profit,

5. identify levels of economic profit,

6. define long run and short run,

7. define marginal cost, average cost, and total cost,

8. differentiate among marginal cost, average cost, and total cost,

9. identify the relationship among marginal cost, average cost, and total cost,

10. define increasing, diminishing, and negative marginal returns,

11. identify graphically increasing, diminishing, and negative marginal returns from both marginal product and total product curves,

12. define fixed cost, variable cost, and total cost,

13. differentiate among fixed cost, variable cost, and total cost,

14. identify graphically fixed cost, variable cost, and total cost,

15. identify graphically the relationship between product and cost curves,

16. explain the relationship between short run and long run total cost curves,

17. define economies of scale, constant returns to scale, and diseconomies of scale,

18. differentiate among economies of scale, constant returns to scale, and diseconomies of scale,

19. identify graphically economies of scale, constant returns to scale, and diseconomies of scale,

20. define minimum efficient scale,

21. identify graphically minimum efficient scale,

22. define natural monopoly, and

23. identify graphically a natural monopoly.

ACTIVITIES

1. M&B chapter 22 quiz.

Assignments:

1. Take the quiz.

2. Complete another production function, similar to the one we did in class on Thursday.
Click here to open a Microsoft Excel version. You must have Excel on your computer to do this, but it will allow you to use formulas to fill in the cells. See the solution in Excel format.
Click here to open an html (Web page) version of the same document. See the solution in html format.

Please note: This is the most difficult chapter in the book. The authors are laying the groundwork for developing an understanding the decision-making in the various types of market structures. The information presented here is therefore foundational for understanding the material in the next several chapters. And this "theory of the firm" is the largest portion of the A.P. Microeconomics test.

ASSESSMENT PROCEDURES