PPT - Production and Costs - Notes | Study Economics Class 11 - Commerce

 Page 1


Production and Cost
“Anybody can cut prices, but it takes brains to 
produce a better article”
Slide 1 of 58
Page 2


Production and Cost
“Anybody can cut prices, but it takes brains to 
produce a better article”
Slide 1 of 58
First, some notes
This module is a critical part of this class.  
The concepts we learn here are a 
foundation for material we will discuss in 
each of the next three modules…and in 
your final project!
We are now turning our attention 
from the behavior of consumers 
(Modules 4 and 6) to the behavior 
of producers (Modules 7-11).
Slide 2 of 58
Page 3


Production and Cost
“Anybody can cut prices, but it takes brains to 
produce a better article”
Slide 1 of 58
First, some notes
This module is a critical part of this class.  
The concepts we learn here are a 
foundation for material we will discuss in 
each of the next three modules…and in 
your final project!
We are now turning our attention 
from the behavior of consumers 
(Modules 4 and 6) to the behavior 
of producers (Modules 7-11).
Slide 2 of 58
This module has been 
divided into three major parts
Part 1: Production 
Relationships
Part 2: Short Run 
Production Costs
Part 3: Long Run Production 
Costs
The relationship between the amount of inputs 
used and the amount of output produced will be 
explored.  One input in particular, labor, will be 
emphasized.
Short run costs are a key part of determining how 
much a producer will produce. Several short run 
costs will be discussed
Long run costs are key in examining how big your 
firm should be.
Slide 3 of 58
Page 4


Production and Cost
“Anybody can cut prices, but it takes brains to 
produce a better article”
Slide 1 of 58
First, some notes
This module is a critical part of this class.  
The concepts we learn here are a 
foundation for material we will discuss in 
each of the next three modules…and in 
your final project!
We are now turning our attention 
from the behavior of consumers 
(Modules 4 and 6) to the behavior 
of producers (Modules 7-11).
Slide 2 of 58
This module has been 
divided into three major parts
Part 1: Production 
Relationships
Part 2: Short Run 
Production Costs
Part 3: Long Run Production 
Costs
The relationship between the amount of inputs 
used and the amount of output produced will be 
explored.  One input in particular, labor, will be 
emphasized.
Short run costs are a key part of determining how 
much a producer will produce. Several short run 
costs will be discussed
Long run costs are key in examining how big your 
firm should be.
Slide 3 of 58
Production relationships help show 
a key      microeconomic concept
• Total Product (TP)
– This is the total output or total quantity of a 
particular good or service produced
• Marginal Product (MP)
– This is the increase in output associated with 
adding one more unit of a resource (for example one 
more unit of labor)
• Average Product (AP)
– This is the output per unit of input (for example the 
amount of output each unit of labor produces)
– In reference to labor, this is productivity
Part 1: Production 
Relationships
Three production relationships will be explored:
TP
MP
AP
Slide 4 of 58
Page 5


Production and Cost
“Anybody can cut prices, but it takes brains to 
produce a better article”
Slide 1 of 58
First, some notes
This module is a critical part of this class.  
The concepts we learn here are a 
foundation for material we will discuss in 
each of the next three modules…and in 
your final project!
We are now turning our attention 
from the behavior of consumers 
(Modules 4 and 6) to the behavior 
of producers (Modules 7-11).
Slide 2 of 58
This module has been 
divided into three major parts
Part 1: Production 
Relationships
Part 2: Short Run 
Production Costs
Part 3: Long Run Production 
Costs
The relationship between the amount of inputs 
used and the amount of output produced will be 
explored.  One input in particular, labor, will be 
emphasized.
Short run costs are a key part of determining how 
much a producer will produce. Several short run 
costs will be discussed
Long run costs are key in examining how big your 
firm should be.
Slide 3 of 58
Production relationships help show 
a key      microeconomic concept
• Total Product (TP)
– This is the total output or total quantity of a 
particular good or service produced
• Marginal Product (MP)
– This is the increase in output associated with 
adding one more unit of a resource (for example one 
more unit of labor)
• Average Product (AP)
– This is the output per unit of input (for example the 
amount of output each unit of labor produces)
– In reference to labor, this is productivity
Part 1: Production 
Relationships
Three production relationships will be explored:
TP
MP
AP
Slide 4 of 58
Total product (TP) describes how 
much can be produced by a firm
In this example, we’ll talk 
about bricklayers.
With no employees, your firm will 
not produce any brick walls.
With the hire of your first 
employee, your firm may be able 
to produce 10 feet of brick wall 
per day.
With the hire of your second 
employee, your firm may be able 
to produce 25 feet of brick wall 
per day.
Note how two employees are 
more productive then twice one 
employee.  They are working 
together and are more efficient.
With the hire of your third 
employee, your firm may be able 
to produce 45 feet of brick wall 
per day.
Note how three employees are 
more productive then three times 
one employee.  They are working 
together and again they are more 
efficient.
Eventually these gains from 
efficiency start to wear off.
If you keep adding employees to 
the same job, eventually they 
become increasingly 
unproductive.
In the extreme, production can 
decline with added employees as 
the worksite becomes crowded 
and confused.
Part 1: Production 
Relationships
TP
Slide 5 of 58