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Production and Cost Fixed Cost Essay
Pages:6 (1789 words)
Sources:12
Subject:Business
Topic:Fixed Costs
Document Type:Essay
Document:#12577118
There is a fixed amount of output possible for any given investment in production capacity, at all possible costs, and if we plot all the potential scales of output against the resulting average cost per unit of production, the result is a long run average total cost curve (LRATC). These economies and diseconomies of scale cause the LRAC to fall from a high origin to a minimum point, and then (theoretically) eventually begin to rise, where there is a minimum where slope is zero. This is the optimum enterprise scale (Petroff, 2002 n. pag.). Each combination of output and average per-unit cost represents a discrete, short-term, short-run ATC curve for that level of production, and optimum firm size is the SRATC curve where unit cost is minimal (7 units at 32$ each, in Table 6), the MC cost curve crosses both LRATC and SRATC, no other firms enter to capture extraordinary profit, and the firm reaches equilibrium at optimal efficiency. Table 6 demonstrates.
Table 6: Output per unit, LRATC
# units
ATC / unit
MC
SRATC
1
2
60
3
50
4
40
20
80
5
35
25
60
6
33
30
40
7
32
32
32
8
33
34
40
9
34
38
60
10
35
44
80
11
36
50
12
37
60
13
38
80
Works Cited
Ben-Akiva, Moshe (2008). 'Theory of the Firm.' OpenCourse Ware, Massachussetts
Institute of Technology, Cambridge Mass. Online (March 16, 2011): http://ocw.mit.edu/courses/civil-and-environmental-engineering/1-201j-transportation-systems-analysis-demand-and-economics-fall-2008/lecture-notes/MIT1_201JF08_lec09.pdf
Bober, Stanley (2001). Alternative Principles of Economics M.E. Sharpe, New York.
Braff, Allan (1969). Microeconomic Analysis. John Wiley & Sons, Inc., New York.
Breit, William and Hochman, Harold (1968) Readings in Microeconomics. Holt, Rinehart
and Winston, Inc.
Henderson, James M. And Quandt, Richard E. (1958). Microeconomic Theory /…
Sample Source(s) Used
Works Cited
Ben-Akiva, Moshe (2008). 'Theory of the Firm.' OpenCourse Ware, Massachussetts
Institute of Technology, Cambridge Mass. Online (March 16, 2011): http://ocw.mit.edu/courses/civil-and-environmental-engineering/1-201j-transportation-systems-analysis-demand-and-economics-fall-2008/lecture-notes/MIT1_201JF08_lec09.pdf
Bober, Stanley (2001). Alternative Principles of Economics M.E. Sharpe, New York.
Braff, Allan (1969). Microeconomic Analysis. John Wiley & Sons, Inc., New York.
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