100 90 80 70 60 50 A+ A A- B+ B B- C+ C C- D D+. Point Score (%)Letter Grade 144A+ 122-134A...
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Transcript of 100 90 80 70 60 50 A+ A A- B+ B B- C+ C C- D D+. Point Score (%)Letter Grade 144A+ 122-134A...
1009080706050
A+
A
A-
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Point Score (%) Letter Grade 144 A+ 122-134 A 118-121 A- 114-117 B+ 102-113 B 96-101 B-93-95 C+84-92 C80-83 C- 76-79 D+Below 76 D
D+
The Cost Curves of Parson’s
Mill
Timothy Lewontin, Parsons’ Mill
Fixed Inputs:
Fundamental Assumption: Parsons’ goal is to maximize profits.
Short-run: the time period over which some inputs are fixed.
Economic research on non-profit institutions changes the assumption, e.g., claims that its only goal is “getting
getting mines out of the ground, now.”
Timothy had no contract and Parsons had no obligation to him beyond day to day—he was hired “at will,” allowing Parsons to fire him at anytime, without need for explanation. And, he did, six months after Timothy started working there. A year later, Parsons’ closed the mill, auctioned off the equipment, and dismantled the mill.
mill and equipment (i.e., K)
Variable Inputs: Labor (Timothy), fuel and wood
Parson’s Mill Single Production Line
ripsaw
boa
rds
Trim Saw
bla
nk
s Substantial Looking Machine
lon
g d
owel
s
shor
t d
owel
s
Inspected & bundled into packets of 50 dowels
To my horror and amazement, the [substantial looking machine] started to deposit [dowels] on my supply cart… I struggled valiantly to keep up. But no matter how fast I worked, Craig could feed them through faster. When he'd gained a sufficient lead on my supply cart, he shut the machine down…
Labor Output
(workers per day)
(bundles of per day)
0 1 2 3 4 5 6 7 8 9
100130150 160165 165
0 10 30 60
0
20
40
60
80
100
120
140
160
180
0 1 2 3 4 5 6 7 8 9
Labor (workers per day)
Parsons Mill’s Production Function
Labor Output Marginal Product
(workers per day)
(bundles per day)
(bundles per
worker)
0 1 2 3 4 5 6 7 8 9
100130150 160165 165
0 10 30 60
10
3020
40302010 5 0
The Law of Diminishing Marginal Returns
Marginal product: the additional output from one more unit of the variable input , e.g., the additionaldowels from one more laborer.
The Law of Diminishing Marginal Returns: as you add more and more labor (variable input) to the mill and machinery (fixed inputs), the marginal product of labor (variable input) must eventually decrease.
0
20
40
60
80
100
120
140
160
180
0 1 2 3 4 5 6 7 8 9
Labor (workers per day)
Ou
tpu
t (b
un
dle
s p
er d
ay
)Parsons Mill’s Production Function
Output is increasing at an increasing rate due to specialization of labor (MPL)
Output is increasing at an decreasing rate because of the limited number of machines (MPL)
(MPL=9)=0, i.e., nothing left to do
Joseph Glidden Patent Drawing
Great Plains of the 1870s—(1) conflict between farmers &
cattle ranchers over stray cattle, (2) wood was scarce.
smooth wireDe Kalb County Fair of 1873
wooden rail with spikes
had a better idea
Barb Fence Company, 1874
Total Revenue
Raw Materials (wire)
Forgone Salary
Forgone Rent
Rental Value of Grinder
$1000
$500
$100
$24
$1
Glidden initially made his barbed wire using a coffee bean grinder in his house
economic π = total revenue − explicit cost − implicit cost
accounting π = (total revenue − explicit cost)
out-of-pocket expenses
= $1000 − $500= $500
costs that do not require an outlay of $
economic π = $1000 − ($500) − ($100 + $24 + $1) = $375 encouraged entry of competitors
Wages of Labor = $50 per workday
The Cost Curves of Parsons’ Mill
Assumptions
Rental Value of Mill and Equipment = $125 per day
variable input
Total Fixed Costs (TFC) do not vary with the level of outputfixed inputs
Total Variable Costs (TVC) depend on the level of output
(workers per day)
(bundles per day) ($ per day) ($ per day) ($ per day)
($ per bundle)
Labor OutputTotal
Fixed Cost
Total Variable
Cost Total CostAverage
Total Cost
0 1 2 3 4 5 6 7 8 9
100130150 160165 165
0 10 30 60
125125125125125125125125125125
050
100150200250300350400450
125175225275325375425475525575
17.57.504.583.25 2.88 2.83 2.97 3.183.48
Marginal and Average Cost Curves
0.00.81.62.43.24.04.85.66.47.28.08.89.6
10.411.212.0
0 20 40 60 80 100 120 140 160 180Output (bundles of dowels per day)
Co
st
($ p
er
bu
nd
le o
f d
ow
els
)
7.5
30
ATC
Marginal and Average Cost Curves
0.00.81.62.43.24.04.85.66.47.28.08.89.6
10.411.212.0
0 20 40 60 80 100 120 140 160 180Output (bundles of dowels per day)
Co
st
($ p
er
bu
nd
le o
f d
ow
els
)
7.5
30
ATC
Labor Output Total CostMarginal
CostMidpoint of Output
(workers per day)
(bundles of per day) ($ per day)
($ per bundle)
(bundles of per day)
0 0 125
1 10 175
2 30 225
3 60 275
4 100 325
5 130 3756 150 425
7 160 475
8 165 525
5
2.5
1.67
1.25
52.5
1.67
10
5
20
45
80
115
140155
162.5
Marginal cost is the cost of producing an additional unit of output
Marginal and Average Cost Curves
0.00.81.62.43.24.04.85.66.47.28.08.89.6
10.411.212.0
0 20 40 60 80 100 120 140 160 180Output (bundles of dowels per day)
Co
st
($ p
er
bu
nd
le o
f d
ow
els
)
ATC
5
5
MC
Marginal and Average Cost Curves
0.00.81.62.43.24.04.85.66.47.28.08.89.6
10.411.212.0
0 20 40 60 80 100 120 140 160 180Output (bundles of dowels per day)
Co
st
($ p
er b
un
dle
of
do
wel
s)
ATC
5
5
MC
0.00.81.62.43.24.04.85.66.47.28.08.89.6
10.411.212.0
0 20 40 60 80 100 120 140 160 180Output (bundles of dowels per day)
Co
st
($ p
er b
un
dle
of
do
wel
s)
ATC
MC
AVCATC
MC
ATC is high because fixed costs are spread over a small number of dowels
MC is high because MPLabor is low
ATC>MC, ATC must
ATC
MC
ATC<MC, ATC must
ATC= min where
MC=ATC
