# Chapter 13

### Slides

VNP-Econ-Chapter 13
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### 13-5. Conclusion

The purpose of this chapter has been to develop some tools to study how firms make production and pricing decisions. You should now understand what economists mean by the term costs and how costs vary with the quantity of output a firm produces. To refresh your memory, Table 3 summarizes some of the definitions we […]

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### 13-4. Costs in the Short Run and in the Long Run

We noted earlier in this chapter that a firm’s costs might depend on the time horizon under consideration. Let’s examine more precisely why this might be the case. 13-4a. The Relationship between Short-Run and Long-Run Average Total Cost For many firms, the division of total costs between fixed and variable costs depends on the time […]

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### 13-3d. Typical Cost Curves

In the examples we have studied so far, the firms have exhibited diminishing marginal product and, therefore, rising marginal cost at all levels of output. This simplifying assumption was useful because it allowed us to focus on the key features of cost curves that are useful in analyzing firm behavior. Yet actual firms are usually […]

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### 13-3c. Cost Curves and Their Shape

Just as in previous chapters we found graphs of supply and demand useful when analyzing the behavior of markets, we will find graphs of average and marginal cost useful when analyzing the behavior of firms. Figure 4 graphs Conrad’s costs using the data from Table 2. The horizontal axis measures the quantity the firm produces, […]

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### 13-3b. Average and Marginal Cost

As the owner of his firm, Conrad has to decide how much to produce. One issue he will want to consider when making this decision is how the level of production affects his firm’s costs. Conrad might ask his production supervisor the following two questions about the cost of producing coffee: • How much does […]

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### 13-3a. Fixed and Variable Costs

Conrad’s total cost can be divided into two types. Some costs, called fixed costs, do not vary with the quantity of output produced. They are incurred even if the firm produces nothing at all. Conrad’s fixed costs include any rent he pays because this cost is the same regardless of how much coffee he produces. […]

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### 13-3.The Various Measures of Cost

Our analysis of Caroline’s Cookie Factory demonstrated how a firm’s total cost reflects its production function. From data on a firm’s total cost, we can derive several related measures of cost, which will turn out to be useful when we analyze production and pricing decisions in future chapters. To see how these related measures are […]

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### 13-2b. From the Production Function to the Total-Cost Curve

The last three columns of Table 1 show Caroline’s cost of producing cookies. In this example, the cost of Caroline’s factory is $30 per hour, and the cost of a worker is$10 per hour. If she hires 1 worker, her total cost is \$40 per hour. If she hires 2 workers, her total cost […]

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