Ch 13. The Costs of Production

.title[
# Ch 13. The Costs of Production
]
.subtitle[
## Microeconomics for Students of Accounting, Finance, and Digital Applications
]
.author[
### Lyuben Ivanov, PhD
]
.institute[
### Sofia University St. Kliment Ohridski
]
.date[
### Fall Term 2024/2025
]

---

class: clear, middle, no-scribble
  
  .font200[
<strong>  Introduction</strong>
]
<hr>

---

# Structure-Conduct-Performance (SCP) Framework

The SCP framework is used to analyze the relationship between the structure of a market, the conduct of firms in that market, and the performance of those firms.

In the SCP framework, market structure refers to the number and size of firms in a market, the degree of product differentiation, and the barriers to entry and exit.

Firms are assumed to be black boxes that adjust their conduct in order to maximize profit when market conditions change, which in turn affects their performance.

---

class: clear, middle, no-scribble
  
  .font200[
<strong>  Profits, Revenues, Costs</strong>
]
<hr>

---

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 150px;"><b>profit</b></td>
    <td> </td>
    <td> </td>
    <td style="vertical-align: top;">whatever is left after the value of the resources that flow from the business(es) to the suppliers is subtracted from the value of the resources that flow from consumers to the business(es)</td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-globe"></i></td>
    <td> </td>
    <td> </td>
    <td> in the 2023 fiscal year, Apple's (accounting!) profit amounted to almost 100 billion dollars, Microsoft delivered almost 73 billion dollars in (accounting!) profit, and Saudi Aramco's (accounting!) profit was almost 160 billion dollars </td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-lightbulb-o"></i></td>
    <td> </td>
    <td> </td>
    <td> profitability is the ultimate (long-term) goal of business; a necessary (but not sufficient!) condition for profitability is the ability to generate revenue </td>
  </tr>
</table>

---

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 150px;"><b>total revenue</b></td>
    <td> </td>
    <td> </td>
    <td style="vertical-align: top;">the amount paid by buyer(s) and received by seller(s) of a good, computed as the price of the good times the quantity sold</td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-globe"></i></td>
    <td> </td>
    <td> </td>
    <td> in the 2023 fiscal year, Apple's revenue amounted to almost $400 billion, Microsoft delivered almost $200 billion in revenue, and Walmart's revenue grew to more than $600 billion </td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-lightbulb-o"></i></td>
    <td> </td>
    <td> </td>
    <td> total revenue is one of the most important concepts in business because it shows the value of resources that flow from consumers to the business entity or an industry; however, the owner(s) of business(es) are ultimately interested in net income (profit) </td>
  </tr>
</table>

---

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 150px;"><b>total cost</b></td>
    <td> </td>
    <td> </td>
    <td style="vertical-align: top;">the market value of the inputs a firm uses in production</td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-globe"></i></td>
    <td> </td>
    <td> </td>
    <td> in the 2023 fiscal year, Apple's total (accounting!) cost amounted to about 300 billion dollars, Microsoft had total (accounting!) cost of 127 billion dollars, and Walmart's total  (accounting!) cost was about 600 billion dollars </td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-lightbulb-o"></i></td>
    <td> </td>
    <td> </td>
    <td> the total economic cost is very difficult to measure because it is the opportunity cost, therefore the accounting cost (which is readily available) is commonly used instead </td>
  </tr>
</table>

---

# Explicit Costs

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 150px;"><b>explicit costs</b></td>
    <td> </td>
    <td> </td>
    <td style="vertical-align: top;">input costs that require an outlay of money by the firm</td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-globe"></i></td>
    <td> </td>
    <td> </td>
    <td> Caroline, an owner of cookie factory, pays $1000 for flour </td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-lightbulb-o"></i></td>
    <td> </td>
    <td> </td>
    <td> these are the costs that accountants can easily record, measure and link to revenue </td>
  </tr>
</table>

---

# Implicit Costs

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 150px;"><b>implicit costs</b></td>
    <td> </td>
    <td> </td>
    <td style="vertical-align: top;">opportunity costs that firms do not pay out of pocket</td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-globe"></i></td>
    <td> </td>
    <td> </td>
    <td> Caroline, an owner of cookie factory, could have earned $1000 working as a chef in a restaurant </td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-lightbulb-o"></i></td>
    <td> </td>
    <td> </td>
    <td> these are the costs that are not recorded in the accounting books, but are important for economic analysis </td>
  </tr>
</table>

---

# Economic Profit and Accounting Profit

---

# Open Question

<div>
    <p>Quality Inc had a revenue of $100,000, explicit costs of $50,000 and implicit costs of $30,000. What is the accounting profit of the company?</p>
</div>

<div style="position: relative; top: 360px">
    <input type="text" id="userAnswer1" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(50000, 'result1', 'userAnswer1')" class="submit-button">Check</button>
</div>
<div id="result1"></div>

---

# Open Question

<div>
    <p>Quality Inc had a revenue of $100,000, explicit costs of $50,000 and implicit costs of $30,000. What is the economic profit of the company?</p>
</div>

<div style="position: relative; top: 360px">
    <input type="text" id="userAnswer2" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(20000, 'result2', 'userAnswer2')" class="submit-button">Check</button>
</div>
<div id="result2"></div>

---

class: clear, middle, no-scribble
  
  .font200[
<strong>  Production</strong>
]
<hr>

---

# Production Function

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 150px;"><b>production function</b></td>
    <td> </td>
    <td> </td>
    <td style="vertical-align: top;">the relationship between the quantity of inputs used to make a good and the quantity of output of that good</td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-globe"></i></td>
    <td> </td>
    <td> </td>
    <td> see next slide </td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-lightbulb-o"></i></td>
    <td> </td>
    <td> </td>
    <td> for well-established, capital-intensive industries the production function can be estimated by the technical specification of the employed technology but for start-ups and labor-intensive industries the production function has to be "discovered" through a costly process of experimentation </td>
  </tr>
</table>

---

# Production Function Question

.pull-left[
.font90[
<table class=" none" style="margin-left: auto; margin-right: auto;">
 <thead>
  <tr>
   <th style="text-align:left;">   </th>
   <th style="text-align:center;"> K=0 </th>
   <th style="text-align:center;"> K=1 </th>
   <th style="text-align:right;"> K=2 </th>
   <th style="text-align:center;"> K=3 </th>
  </tr>
 </thead>
<tbody>
  <tr>
   <td style="text-align:left;"> L=0 </td>
   <td style="text-align:center;"> 0 </td>
   <td style="text-align:center;"> 0 </td>
   <td style="text-align:right;"> 0 </td>
   <td style="text-align:center;"> 0 </td>
  </tr>
  <tr>
   <td style="text-align:left;"> L=1 </td>
   <td style="text-align:center;"> 0 </td>
   <td style="text-align:center;"> 25 </td>
   <td style="text-align:right;"> 52 </td>
   <td style="text-align:center;"> 74 </td>
  </tr>
  <tr>
   <td style="text-align:left;"> L=2 </td>
   <td style="text-align:center;"> 0 </td>
   <td style="text-align:center;"> 55 </td>
   <td style="text-align:right;"> 112 </td>
   <td style="text-align:center;"> 162 </td>
  </tr>
  <tr>
   <td style="text-align:left;"> L=3 </td>
   <td style="text-align:center;"> 0 </td>
   <td style="text-align:center;"> 83 </td>
   <td style="text-align:right;"> 170 </td>
   <td style="text-align:center;"> 247 </td>
  </tr>
  <tr>
   <td style="text-align:left;"> L=4 </td>
   <td style="text-align:center;"> 0 </td>
   <td style="text-align:center;"> 108 </td>
   <td style="text-align:right;"> 220 </td>
   <td style="text-align:center;"> 325 </td>
  </tr>
  <tr>
   <td style="text-align:left;"> L=5 </td>
   <td style="text-align:center;"> 0 </td>
   <td style="text-align:center;"> 125 </td>
   <td style="text-align:right;"> 258 </td>
   <td style="text-align:center;"> 390 </td>
  </tr>
  <tr>
   <td style="text-align:left;"> L=6 </td>
   <td style="text-align:center;"> 0 </td>
   <td style="text-align:center;"> 137 </td>
   <td style="text-align:right;"> 286 </td>
   <td style="text-align:center;"> 425 </td>
  </tr>
  <tr>
   <td style="text-align:left;"> L=7 </td>
   <td style="text-align:center;"> 0 </td>
   <td style="text-align:center;"> 141 </td>
   <td style="text-align:right;"> 304 </td>
   <td style="text-align:center;"> 453 </td>
  </tr>
</tbody>
</table>
]
]

<div>
    <p>What would be the output of a firm whose production function is depicted on the left if the firm used 2 units of capital and 5 workers</p>
</div>

<div style="position: relative; top: 240px">
    <input type="text" id="userAnswer3" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(258, 'result3', 'userAnswer3')" class="submit-button">Check</button>
</div>
<div id="result3"></div>
  
]

---

# Production Function Example

.pull-right[
Complete the plot below (assuming K is fixed at 3 units):
<img src="11hidden_files/figure-html/unnamed-chunk-10-1.svg" style="display: block; margin: auto;" />
]

---

# Capital and Productivity of Labor

.panelset.sideways.right[
.panel[
.panel-name[K=2]
<img src="tp27.svg" style="width: 100%;">
]
.panel[
.panel-name[K=3]
<img src="tp37.svg" style="width: 100%;">
]
]

---

# Marginal Product of Labor (MPL)

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 150px;"><b>marginal product</b></td>
    <td> </td>
    <td> </td>
    <td style="vertical-align: top;">the increase in output that arises from an additional unit of input (MP<sub>L</sub>=&Delta;TP if &Delta;L=1)</td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-globe"></i></td>
    <td> </td>
    <td> </td>
    <td> if Caroline, owner of a small cookie shop, hires a second worker, the output increases with 40 cookies per hour </td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-lightbulb-o"></i></td>
    <td> </td>
    <td> </td>
    <td> once the production function is established, the calculation of the marginal product is trivial </td>
  </tr>
</table>

---

# MPL Completion Task

<table class="none">
  <tr>
    <th>Workers</th>
    <th>Total Product</th>
    <th>Marginal Product</th>
  </tr>
  <tr>
    <td style="text-align: center; height: 0.3em;"></td>
    <td style="text-align: center; height: 0.3em;"></td>
    <td style="text-align: center; height: 0.3em;"></td>
  </tr>
  <tr>
    <td style="text-align: center">0</td>
    <td style="text-align: center">0</td>
    <td style="text-align: center" class="can-edit"></td>
  </tr>
  <tr>
    <td style="text-align: center">1</td>
    <td style="text-align: center">25</td>
    <td style="text-align: center" class="can-edit"></td>
  </tr>
  <tr>
    <td style="text-align: center">2</td>
    <td style="text-align: center">55</td>
    <td style="text-align: center" class="can-edit"></td>
  </tr>
  <tr>
    <td style="text-align: center">3</td>
    <td style="text-align: center">83</td>
    <td style="text-align: center" class="can-edit"></td>
  </tr>
  <tr>
    <td style="text-align: center">4</td>
    <td style="text-align: center">108</td>
    <td style="text-align: center" class="can-edit"></td>
  </tr>
  <tr>
    <td style="text-align: center">5</td>
    <td style="text-align: center">125</td>
    <td style="text-align: center" class="can-edit"></td>
  </tr>
  <tr>
    <td style="text-align: center">6</td>
    <td style="text-align: center">137</td>
    <td style="text-align: center" class="can-edit"></td>
  </tr>
</table>

---

# Diminishing Marginal Product

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 150px;"><b>diminishing marginal product</b></td>
    <td> </td>
    <td> </td>
    <td style="vertical-align: top;">the property whereby the marginal product of an input declines as the quantity of the input increases</td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-globe"></i></td>
    <td> </td>
    <td> </td>
    <td> the second worker has a marginal product of 40 cookies per hour, the third worker has a marginal product of 30 cookies per hour, and the fourth worker has a marginal product of 20 cookies per hour </td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-lightbulb-o"></i></td>
    <td> </td>
    <td> </td>
    <td> the idea of diminishing marginal product is very important in economic theory but there is little evidence that diminishing marginal product can be observed in practice in the big modern companies </td>
  </tr>
</table>

---

# Quick Test

.pull-left[
<div style="position: relative; top: 18px;">
<table class="none">
  <tr>
    <th>Workers</th>
    <th>Total Product</th>
  </tr>
  <tr>
    <td style="text-align: center; height: 0.3em;"></td>
    <td style="text-align: center; height: 0.3em;"></td>
  </tr>
  <tr>
    <td style="text-align: center">0</td>
    <td style="text-align: center">0</td>
  </tr>
  <tr>
    <td style="text-align: center">1</td>
    <td style="text-align: center">25</td>
  </tr>
  <tr>
    <td style="text-align: center">2</td>
    <td style="text-align: center">59</td>
  </tr>
  <tr>
    <td style="text-align: center">3</td>
    <td style="text-align: center">98</td>
  </tr>
  <tr>
    <td style="text-align: center">4</td>
    <td style="text-align: center">128</td>
  </tr>
  <tr>
    <td style="text-align: center">5</td>
    <td style="text-align: center">150</td>
  </tr>
  <tr>
    <td style="text-align: center">6</td>
    <td style="text-align: center">140</td>
  </tr>
</table>
</div>
]

<div>
    <p>After hiring which worker does diminishing marginal product of labor set in?</p>
</div>

<div style="position: relative; top: 300px">
    <input type="text" id="userAnswer4" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(3, 'result4', 'userAnswer4')" class="submit-button">Check</button>
</div>
<div id="result4"></div>
  
]
   
---

class: clear, middle, no-scribble
  
  .font200[
<strong>  Fixed and Variable Costs</strong>
]
<hr>

---

# Fixed Costs

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 150px;"><b>fixed costs</b></td>
    <td> </td>
    <td> </td>
    <td style="vertical-align: top;">costs that do not vary with the quantity of output produced</td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-globe"></i></td>
    <td> </td>
    <td> </td>
    <td> start-up costs, cost of rented capital, administrative costs, marketing costs, research and development costs </td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-lightbulb-o"></i></td>
    <td> </td>
    <td> </td>
    <td> a basic principle of accounting is that fixed costs should be spread over the whole period during which they would generate revenues </td>
  </tr>
</table>

---

# Variable Costs

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 150px;"><b>variable costs</b></td>
    <td> </td>
    <td> </td>
    <td style="vertical-align: top;">costs that vary with the quantity of output produced</td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-globe"></i></td>
    <td> </td>
    <td> </td>
    <td> workers's salaries, cost of raw materials (including energy sources) </td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-lightbulb-o"></i></td>
    <td> </td>
    <td> </td>
    <td> normally it is fairly easy to match the variable costs to the corresponding revenues </td>
  </tr>
</table>

---

# Calculated Question

.pull-left[
<img src="11hidden_files/figure-html/unnamed-chunk-11-1.svg" style="display: block; margin: auto;" />
]

<div>
    <p>Dynamic Excellence Inc has hired 10 workers and at the current market wage of $5,000 per month. It is using 5 machines for production with rental price of $20,000 per month and is renting offices for $20,000 per month. It produces 10,000 books per month and sells them for $20 per book. How much is Dynamic Excellence's total cost per month?</p>
</div>

<div style="position: relative; top: 0px">
    <input type="text" id="userAnswer5" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(170000, 'result5', 'userAnswer5')" class="submit-button">Check</button>
</div>
<div id="result5"></div>
  
]

---

# Calculated Question

.pull-left[
<img src="11hidden_files/figure-html/unnamed-chunk-12-1.svg" style="display: block; margin: auto;" />
]

<div>
    <p>Dynamic Excellence Inc has hired 10 workers at the current market wage of $5,000 per month. It is using 5 machines for production with rental price of $20,000 per month and is renting offices for $20,000 per month. It prints 10,000 books per month and sells them for $20 per book. How much is the firm's profit per month?</p>
</div>

<div style="position: relative; top: 30px">
    <input type="text" id="userAnswer6" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(30000, 'result6', 'userAnswer6')" class="submit-button">Check</button>
</div>
<div id="result6"></div>
  
]

---

# Calculated Question

.pull-left[
<img src="11hidden_files/figure-html/unnamed-chunk-13-1.svg" style="display: block; margin: auto;" />
]

<div>
    <p>Dynamic Excellence Inc has hired 10 workers at the current market wage of $5,000 per month. It is using 5 machines for production with rental price of $20,000 per month and is renting a building for $30,000 per month. It prints 10,000 books per month and sells them for $20 per book. How much are Dynamic Excellence's fixed costs per month?</p>
</div>

<div style="position: relative; top: 0px">
    <input type="text" id="userAnswer7" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(130000, 'result7', 'userAnswer7')" class="submit-button">Check</button>
</div>
<div id="result7"></div>
  
]

---

# Calculated Question

.pull-left[
<img src="11hidden_files/figure-html/unnamed-chunk-14-1.svg" style="display: block; margin: auto;" />
]

<div>
    <p>Dynamic Excellence Inc has hired 10 workers at the current market wage of $6,000 per month. It is using 5 machines for production with rental price of $20,000 per month and is renting a building for $20,000 per month. It prints 10,000 books per month and sells them at $20 per book. How much are Dynamic Excellence's monthly variable costs?</p>
</div>

<div style="position: relative; top: 0px">
    <input type="text" id="userAnswer8" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(60000, 'result8', 'userAnswer8')" class="submit-button">Check</button>
</div>
<div id="result8"></div>
  
]

---

class: clear, middle, no-scribble
  
  .font200[
<strong>  Average Costs</strong>
]
<hr>

---

# Average Total Cost

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 150px;"><b>average total cost</b></td>
    <td> </td>
    <td> </td>
    <td style="vertical-align: top;">total cost divided by the quantity of output</td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-globe"></i></td>
    <td> </td>
    <td> </td>
    <td> if Excellence Inc is producing 100 books per week for a total cost of $1,000, the cost per book is $10 </td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-lightbulb-o"></i></td>
    <td> </td>
    <td> </td>
    <td> if one can estimate the total cost (TC) at various levels of output the calculation of average total cost (ATC) is done by simply applying the formula ATC=TC/Q </td>
  </tr>
</table>

---

# Average Fixed Cost

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 150px;"><b>average fixed cost</b></td>
    <td> </td>
    <td> </td>
    <td style="vertical-align: top;">fixed cost divided by the quantity of output</td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-globe"></i></td>
    <td> </td>
    <td> </td>
    <td> if Excellence Inc is producing 100 books per week and has fixed costs of $5,000, the fixed cost per book is $5 </td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-lightbulb-o"></i></td>
    <td> </td>
    <td> </td>
    <td> the calculation of average fixed cost (AFC) is done by simply applying the formula AFC=FC/Q </td>
  </tr>
</table>

---

# Average Variable Cost

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 150px;"><b>average variable cost</b></td>
    <td> </td>
    <td> </td>
    <td style="vertical-align: top;">variable cost divided by the quantity of output</td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-globe"></i></td>
    <td> </td>
    <td> </td>
    <td> if Excellence Inc is producing 200 books per week and has variable costs of $200, the variable cost per book is $1 </td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-lightbulb-o"></i></td>
    <td> </td>
    <td> </td>
    <td> if one can estimate the variable cost (VC) at various levels of output the calculation of average variable cost (AVC) is done by simply applying the formula AVC=VC/Q </td>
  </tr>
</table>

---

# Calculated Question

.pull-left[
<img src="11hidden_files/figure-html/unnamed-chunk-15-1.svg" style="display: block; margin: auto;" />
]

<div>
    <p>Dynamic Excellence Inc has hired 10 workers at the current market wage of $6,000 per month. It is using 10 machines for production with rental price of $10,000 per month and renting offices for $20,000 per month. It prints 10,000 books per month and sells them for $15 per book. How much is Dynamic Excellence's revenue per book?</p>
</div>

<div style="position: relative; top: 0px">
    <input type="text" id="userAnswer9" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(15, 'result9', 'userAnswer9')" class="submit-button">Check</button>
</div>
<div id="result9"></div>
  
]

---

# Calculated Question

.pull-left[
<img src="11hidden_files/figure-html/unnamed-chunk-16-1.svg" style="display: block; margin: auto;" />
]

<div>
    <p>Dynamic Excellence Inc has hired 10 workers at the current market wage of $2,000 per month. It is using 10 machines for production with rental price of $10,000 per month and renting offices for $20,000 per month. It produces 10,000 books selling for $15 per book. How much is Dynamic Excellence's fixed cost per book?</p>
</div>

<div style="position: relative; top: 30px">
    <input type="text" id="userAnswer10" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(12, 'result10', 'userAnswer10')" class="submit-button">Check</button>
</div>
<div id="result10"></div>
  
]

---

# Calculated Question

.pull-left[
<img src="11hidden_files/figure-html/unnamed-chunk-17-1.svg" style="display: block; margin: auto;" />
]

<div>
    <p>Dynamic Excellence Inc has hired 10 workers at the current market wage of $3,000 per month. It is using 10 machines for production with rental price of $10,000 per month and renting offices for $20,000 per month. It produces 10,000 books selling for $15 per book. How much is Dynamic Excellence's variable cost per book?</p>
</div>

<div style="position: relative; top: 0px">
    <input type="text" id="userAnswer11" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(3, 'result11', 'userAnswer11')" class="submit-button">Check</button>
</div>
<div id="result11"></div>
  
]

---

# Calculated Question

.pull-left[
<img src="11hidden_files/figure-html/unnamed-chunk-18-1.svg" style="display: block; margin: auto;" />
]

<div>
    <p>Dynamic Excellence Inc has hired 10 workers at the current market wage of $4,000 per month. It is using 10 machines for production with rental price of $10,000 per month and renting offices for $20,000 per month. It produces 10,000 books selling for $12 per book. How much is Dynamic Excellence's profit per book?</p>
</div>

<div style="position: relative; top: 30px">
    <input type="text" id="userAnswer12" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(-4, 'result12', 'userAnswer12')" class="submit-button">Check</button>
</div>
<div id="result12"></div>
  
]

---

class: clear, middle, no-scribble
  
  .font200[
<strong>  Marginal Analysis</strong>
]
<hr>

---

# Marginal Cost

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 150px;"><b>marginal cost</b></td>
    <td> </td>
    <td> </td>
    <td style="vertical-align: top;">the increase in total cost that arises from an extra unit of production</td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-globe"></i></td>
    <td> </td>
    <td> </td>
    <td> if the production of an extra book requires hiring an extra worker with salary of $5,000 per month than the marginal cost is $5,000 for the extra book </td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-lightbulb-o"></i></td>
    <td> </td>
    <td> </td>
    <td> if one can estimate the total cost (TC) at various levels of output the calculation of marginal cost (MC) is done by applying the formula MC=&Delta; TC/&Delta; Q if &Delta; Q = 1 </td>
  </tr>
</table>

---

class: clear, middle, no-scribble
  
  .font200[
<strong>  Theoretical Cost Curves</strong>
]
<hr>

---

# Theoretical Cost Curves Diagram

.panelset.sideways.right[
.panel[
.panel-name[AFC]
<img src="11hidden_files/figure-html/afc1-1.svg" style="display: block; margin: auto;" />
]

.panel[
.panel-name[AC]
<img src="11hidden_files/figure-html/acc1-1.svg" style="display: block; margin: auto;" />
]

.panel[
.panel-name[MC]
<img src="11hidden_files/figure-html/mcc1-1.svg" style="display: block; margin: auto;" />
]
]

---

class: clear, middle, no-scribble
  
  .font200[
<strong>  Costs In The Short Run And In<br>&nbsp;The Long Run</strong>
]
<hr>

---

# Economies of Scale

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 150px;"><b>economies of scale</b></td>
    <td> </td>
    <td> </td>
    <td style="vertical-align: top;">the property whereby long-run average total cost falls as the quantity of output increases</td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-globe"></i></td>
    <td> </td>
    <td> </td>
    <td> Tesla spreads the cost of R&D over millions of cars, signs long-term contract for purchases of lithium at discounted price, builds a "product that builds the products" </td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-lightbulb-o"></i></td>
    <td> </td>
    <td> </td>
    <td> the economies of scale are a major barriers to competitors in many capital-intensive industries </td>
  </tr>
</table>

---

---

# Diseconomies of Scale

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 150px;"><b>diseconomies of scale</b></td>
    <td> </td>
    <td> </td>
    <td style="vertical-align: top;">the property whereby long-run average total cost rises as the quantity of output increases</td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-globe"></i></td>
    <td> </td>
    <td> </td>
    <td> Tesla becomes so big that Elon Musk loses track of what is going on and most of the workers become demotivated </td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-lightbulb-o"></i></td>
    <td> </td>
    <td> </td>
    <td> the diseconomies of scale are the bane of huge enterprises which might become completely dysfunctional and unmanageable at certain point; however, the advent of technology and data science helps to postpone this point </td>
  </tr>
</table>

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# Economies and Diseconomies of Scale Diagram

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# Questions?

<br>

</body>
</html>

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# Thank You!

<br>