Professional Documents
Culture Documents
Economics
Production and Cost
H. Suherman Rosyidi
Production Function
Short run
At least one of the
inputs is fixed
Long run
All inputs are
variables
Long- and Short run
Production Function
Labor units (L) (hundreds of person hours)
1 2 3 4 5 6 7 8
1 1 3 7 10 12 13 13.5 13
Capital 3 8 14 19 23 26 28 29
2
units
(K) (000s 3 8 18 29 41 52 62 71 79
of
machine 4 11 23 36 50 65 78 90 101
hours)
5 12 26 42 60 80 98 112 124
Short-run production
function
Units of Units of Marginal Average
Variable Output Product Product
Factor (L) (for K = 3)
(Total Product)
0 0
1 8 8 8
2 18 10 9
3 29 11 9.7
4 41 12 10.2
5 52 11 10.4
6 62 10 10.3
7 71 9 10.1
8 79 8 9.9
Total Product (of labor)
TP
Total product
curve must take
this form due to
the law of
diminishing
returns
Labor units (L)
Total Product & Variable Cost
Assuming: price of labor = $10/unit
TP
TVC TP
Q2
Q1
40 30 20 10 0 1 2 3 4
TVC Labor
Total Variabel Cost curve
(TVC)
TVC
0 Output
Total Cost curve (TC)
TC
TVC
TFC
Cost
TVC TFC
0
Output
Marginal Cost (MC)
TC
TC
G TVC
TC A
C
MC =
TC & TVC
Q
TVC 0 B M
Q
F
MC =
Q MC
N
0 M output
Average Cost (AC)
TC
TC = TFC + TVC
TVC & TC
F
TC TFC TVC TVC
B
Q Q Q H
C
AC = AFC + AVC
A J G
AC = TC
D
Q MC
E AC
AVC
A Output J G
Biaya Produksi
Output TFC ($) MC ($) TVC ($) TC ($)
1 40 40
2 50 90 190
3 100 70 260
4 100