Chapter 21 How Cost of Production Affects Supply
 

I. Defining Cost Types

II. Understanding Labor Productivity

III. Determining Production Costs

IV. Graphing Production Costs

V. Productivity Affects Costs

VI. Total Variable Costs

VII. Long Run Costs

VIII. Robot Revolution

VI. Total Variable Costs

Time Value of Money videos

Test Review Notes Ch 19-22

Chapter 22 Understanding Profit

I. Defining Cost Types

  A. Introduction
        
         1. The last two chapters were an in-depth exploration of demand.
         2. This chapter will explore costs, the key determinate of supply.

     B. Costs are the dollars paid for the factors of production.

          1. Explicit costs require an out-of-pocket expenditure, e.g., wages, 
             materials, and overhead.
          2. Implicit costs do not require an outlay, e.g., forgone interest on 
              invested capital, forgone rent a company could receive by renting
              a facility used in the business, forgone wages for uncompensated
              efforts by family members in a family-operated business, forgone
              entrepreneurial income you could earn by managing another
              business. Included a normal return on investment, which is the
              minimum amount required to keep resources employed at their
              current use. 
          3. Opportunity Costs_

     C. Short run versus long run costs

          1. In the short run costs are both fixed and variable.
              a. Fixed costs do not vary with production, e.g., plant and
                  equipment, property taxes, most overhead, etc.
              b. Variable costs vary directly with production, e.g., labor and
                   materials 
              c. Marginal cost is the change in total costs which results from
                  making one more unit.
          2. In the long run all costs are variable as fixed costs may increase. 

     D. Diminishing returns:

      1. Adding a variable resource (labor) to a fixed resource (capital) will
               increase production for a while.
          2. At some point the rate of increase declines-turns negative. 
          3. Diminishing returns affects labor cost and cost of production.
          4. Example: When eating at my mother's house I would say
              using three people to do the dishes didn't make sense because
              the third person  just got in the way. She agreed so me and
              my sisters did the dishes.
          5. Diminishing returns - Wikipedia has additional information.
          6. Econ in 60 Seconds Law of Diminishing Marginal Returns  
              reviews diminishing returns and previews section III on labor
              productivity.

    E. Accounting profits versus economic profits

         1. Accounting profit is revenue minus explicit costs.
         2. Economic profit is revenue minus explicit plus implicit costs.
         3. Since implicit cost includes a payment for the risk factor part of 
              interest and payment for entrepreneurial skill.
        4. This means
             a.  Normal Profit is a cost  to economists and paid for
                  as an explicit cost.
             b. In the long run competition causes economic profit to be zero.
      F. Related topics
           1. Ignore Sunk Costs 29 min audio
           2. Introduction to Managerial Accounting 8 min. video
           3. Managerial Accounting Internet Library
           4. Accounting for Managers has free books
           5. Econometrics video lectures

US Capacity Utilization Back to 2016 Levels - The Sounding Line

Current Slow Down is Not Unprecedented

With Asian Competition,
Some Manufacturing Became Less Profitable

Service Productivity Improved Because Fewer Workers Needed

II. Understanding Labor Productivity

Total product of labor (TP_L) measures total production occurring as more workers are added to a production process containing fixed resources.

Marginal product of labor (MP_L) measures the change in the TP_L which occurs as more workers are added to a production process containing fixed resources.

Average product of labor (AP_L) measures the average production of all workers as additional workers are added to a production process containing fixed resources.

Note: MP_L should be plotted at the mid-point on the x-axis.

Educating the Class of 2034.htm applies productivity  theory to education.

19) Elasticity of Demand Affects Total Revenue

20) Consumer Behavior and Demand Theory

22) Analyzing Profit

See

Managerial Accounting Internet Library

Free Business Books

Stage 3 Negative marginal returns to scale because workers
 are in the way of each other.