Chapter 7

The Cost of
Production
Ani Dwi Rahmanti
Dilla Andyana Sari
Lutfhia Ayu Saraswati
Mutia Aulia Rizkia
Nabilla Anandita
Raisa Putri Nabila
Shinta Prameshwari S
OUTLINE
7.1 Measuring Cost: Which Costs Matter?
7.2 Cost in the Short Run
7.3 Cost in the Long Run
7.4 Long-Run versus Short-Run Cost Curves
7.5 Production with Two OutputsEconomies of Scope
7.6 Dynamic Changes in CostsThe Learning Curve
7.7 Estimating and Predicting Cost
COST
Economic Cost
versus Accounting
Cost
Fixed Costs
and Variable
Costs
Fixed versus
Sunk Costs
Marginal
and Average
Cost
Sunk Costs
Opportunity
Cost
7.1
Economic Cost versus Accounting Cost
accounting cost Actual expenses plus
depreciation charges for capital
equipment.
economic cost Cost to a firm of utilizing
economic resources in production,
including opportunity cost.
Opportunity Cost
opportunity cost Cost associated with
opportunities that are forgone when a
firms resources are not put to their best
alternative use.
7.1
Sunk Costs
sunk cost Expenditure that has
been made and cannot be recovered.
Because a sunk cost cannot be recovered, it should not
influence the firms decisions.

Because it has no alternative use, its opportunity cost is zero.
7.1
Fixed Costs and Variable Costs
total cost (TC or C) Total economic
cost of production, consisting of fixed
and variable costs.

fixed cost (FC) Cost that does not
vary with the level of output and that
can be eliminated only by shutting
down.
variable cost (VC) Cost that varies as
output varies.
The only way that a firm can eliminate its fixed costs is
by shutting down.
7.1
Fixed Costs and Variable Costs
Fixed or Variable?
Over a very short time horizonsay, a few months
most costs are fixed.
Over such a short period, a firm is usually obligated to
pay for contracted shipments of materials.
Over a very long time horizonsay, ten yearsnearly all
costs are variable.
Workers and managers can be laid off (or employment
can be reduced by attrition), and much of the
machinery can be sold off or not replaced as it becomes
obsolete and is scrapped.
7.1
Fixed versus Sunk Costs

Sunk costs are costs that have been incurred and cannot
be recovered.

An example is the cost of R&D to a pharmaceutical
company to develop and test a new drug and then, if the
drug has been proven to be safe and effective, the cost of
marketing it.

Whether the drug is a success or a failure, these costs
cannot be recovered and thus are sunk.
7.1
Marginal and Average Cost
Marginal Cost (MC)
marginal cost (MC)
Increase in cost resulting
from the production of one
extra unit of output.
Because fixed cost does not change as the firms level of
output changes, marginal cost is equal to the increase in
variable cost or the increase in total cost that results from
an extra unit of output.

We can therefore write marginal cost as
7.1
Marginal and Average Cost
Average Total Cost (ATC)
average total cost (ATC) Firms
total cost divided by its level of
output.
average fixed cost (AFC)
Fixed cost divided by the level
of output.
average variable cost (AVC)
Variable cost divided by the level
of output.
7.1
Marginal and Average Cost
Marginal Cost (MC)
Rate of Fixed Variable Total Marginal Average Average Average
Output Cost Cost Cost Cost Fixed Cost Variable Cost Total Cost
(Units (Dollars (Dollars (Dollars (Dollars (Dollars (Dollars (Dollars
per Year) per Year) per Year) per Year) per Unit) per Unit) per Unit) per Unit)
(FC) (VC) (TC) (MC) (AFC) (AVC) (ATC)
(1) (2) (3) (4) (5) (6) (7)
0 50 0 50 -- -- -- --
1 50 50 100 50 50 50 100
2 50 78 128 28 25 39 64
3 50 98 148 20 16.7 32.7 49.3
4 50 112 162 14 12.5 28 40.5
5 50 130 180 18 10 26 36
6 50 150 200 20 8.3 25 33.3
7 50 175 225 25 7.1 25 32.1
8 50 204 254 29 6.3 25.5 31.8
9 50 242 292 38 5.6 26.9 32.4
10 50 300 350 58 5 30 35
11 50 385 435 85 4.5 35 39.5
TABLE 7.1 A Firms Costs
7.2 Cost in the Short-Run
MC = wL/q
The Determinants of Short-Run Cost

MC = VC/q
Perubahan biaya variabel pada
perubahan 1 unit output

VC = wL
Perubahan pada biaya variabel
adalah biaya per unit tenaga kerja
dikali jumlah tenaga kerja tambahan


MP
L
= q/L
Produksi marginal adalah perubahan
output akibat perubahan 1 unit input

L/q = 1/ MP
L

Tenaga kerja yang dibutuhkan untuk
menambah 1 unit output
MC = w/ MP
L

Diminishing Marginal Returns and Marginal
Cost

Diminishing marginal returns = menurunnya marginal
product saat kuantitas tenaga kerja terus meningkat

As a result, when there are diminishing marginal returns,
marginal cost will increase as output increases.

The Shapes of the Cost Curves
Biaya Penggunaan modal
Biaya Penggunaan Tenaga
Kerja
7.3 BIAYA PRODUKSI JANGKA PANJANG
Modal yang dibeli

Penyusutan Ekonomi + (Bunga) (Harga Beli
Penyusutan)
Nilai per dolar modal
r= Tingkat Penyusutan + Bunga
Modal yang disewa

Tingkat Sewa =
Biaya Sewa Satu Unit Modal Per Tahun
Modal yang dibeli dapat diperlakukan
sebagai sewa pada tingkat sewa yang sama
dengan biaya penggunaan modal
MEMILIH INPUT
Biaya total
C = wL + rK
Persamaan Biaya Total
K = C/r (w/r)/L
Kemiringan garis
K/L = (w/r)
Memilih Input Ketika Harga Suatu
Input Berubah
Minimisasi Biaya dengan Berbagai Tingkat
Output
LONG RUN
VS
SHORT RUN COST CURVES
When a firm operates
in the short run, its cost
of production may not
be minimized because
of inflexibility in the
use of capital inputs.
Output is initially at
level q
1
.
In the short run, output
q
2
can be produced
only by increasing
labor from L
1
to L
3

because capital is fixed
at K
1
.
In the long run, the
same output can be
produced more cheaply
by increasing labor
from L
1
to L
2
and
capital from K
1
to K
2
.
Long-Run Average Cost (LAC)
Short-Run Average Cost (SAC)
Long-Run Marginal Cost (LMC)
Saat LAC menurun
LAC > LMC

Saat LAC meningkat
LAC < LMC

Saat LAC=LMC
LAC minimum
Output increase average cost of production decline
Jika perusahaan berskala besar
pekerja lebih produktif
Flexible
Membeli input dengan harga rendah
Pada short run input berlebih membuat
kurang efektif
Perusahaan lebih besar menjadi kurang
efisien dan efektif
Keuntungan berbelanja dalam skala
besar hilang
ECONOMIC OF SCALE
Situation in which output can be
doubled for less than a doubling of cost.

DISECONOMIC OF SCALE
Situation in which a doubling of output
requires more than a doubling of cost.

Increasing Returns to Scale
Output more than doubles when
the quantities of all inputs are
doubled.

Economies of Scale
A doubling of output requires
less than a doubling of cost.
Cost-output elasticity
the percentage change in the cost of production
resulting from a 1-percent increase in output



EC relates to traditional measures of cost
The long-run
average cost curve
LAC is the envelope
of the short-run
average cost curves
SAC
1
, SAC
2
, and
SAC
3
.
With economies
and diseconomies
of scale, the
minimum points of
the short-run
average cost curves
do not lie on the
long-run average
cost curve.
7.5 PRODUCTION WITH TWO OUTPUTS
ECONOMIES OF SCOPE
Product Transformation Curves
Economies and Diseconomies of Scope
The Degree of Economies of Scope
Product Transformation Curves
Various combinations of two different outputs
(products) that can be produced with a given set of
inputs.
Joint output of a single firm is greater than output
that could be achieved by two different firms when each
produces a single product.
Joint output of a single firm is less than could be
achieved by separate firms when each produces a single
product.
Economies and Diseconomies of Scope
ECONOMIES OF SCOPE
DISECONOMIES OF SCOPE
PRODUCTION WITH TWO OUTPUTS
ECONOMIES OF SCOPE
The Degree of Economies of Scope
Given that :
C (q1) : biaya untuk memproduksi output q1
C (q2) : biaya untuk memproduksi output q2
C (q1, q2) : biaya gabungan untuk memproduksi kedua
output


PERUBAHAN DINAMIS PADA BIAYA-KURVA BELAJAR
*7.6
Karena managemen dan tenaga kerja memperoleh lebih banyak
pengalaman produksi, biaya marginal dan biaya rata-rata untuk
memproduksi suatu tingkat output tertentu jatuh karena 4 alasan :

1. Pekerja sering membutuhkan banyak waktu untuk
menyelesaikan tugas ketika baru mulai melakukannya. Apabila
lebih terampil, kecepatan juga meningkat.

1. Para manajer belajar menjadwalkan proses industri yang lebih
efektif, dari pe input material sampai organisasi pembuatannya.

2. Para insinyur, yang awalnya sangat hati-hati terhadap rancangan
produknya, mungkin memperoleh cukup banyak pengalaman
untuk dapat memberi peluang dalam perancangan peralatan
3. Para pemasok dapat belajar bagaimana cara yang lebih efektif
dala mengolah bahan yang dibutuhkan oleh perusahaan
Kurva Belajar
Figure 7.11
Kurva Belajar kurva yang menghubungkan jumlah
input yang dibutuhkan oleh sebuah perusahaan untuk
memprodusi setiap unit output untuk kumulatif
outputnya.
Membuat Grafik Learning Curve
Learning Curve berdasarkan hubungan:
(7.8) Learning Curve versus skala ekonomi
Economies of Scale versus
Learning
Biaya produksi rata-rata
perusahaan menurun
sepanjang waktu karena
pertumbuhan penjualan
ketika hasil yang semakin
meningkat terjadi ( A ke B
pada kurva AC1) atau
menurun karena terdapat
kurva belajar( AC ke C)
Gambar 7.12
Learning curve vs skala ekonomis
TABEL 7.3 Memperkirakan Kebutuhan Tenaga Kerja untuk
Produksi Output Tertentu
output kumulatif Kebutuhan Tenaga Kerja per Unit Total Labor
(N) untuk tiap 10 unit output (L)* dibutuhkan
10 1.00 10.0
20 .80 18.0(10.0 + 8.0)
30 .70 25.0(18.0 + 7.0)
40 .64 31.4(25.0 + 6.4)
50 .60 37.4(31.4 + 6.0)
60 .56 43.0(37.4 + 5.6)
70 .53 48.3(43.0 + 5.3)
80 .51 53.4(48.3 + 5.1)
*angka dari kolom ini dihitung dari persamaan log(L)= -0,322 log(N/10)
dimana L adalah masukan unit tenaga kerja dan N adalah output kumulatif.
Kurva belajar untuk Airbus
Industri
Kurva belajar
memperlihatkan
kebutuhan tenaga kerja
per pesawat terbang
untuk jumlah kumulatif
pesawat terbang yang
diproduksi. Karena
produksi lebih
terorganisasi dengan
baik dan pekerja telah
terbiasa dengan
pekerjaan mereka,
kebutuhan tenaga kerja
akan turun secara
dramatis.
Gambar 7.13
7.7 MEMPERKIRAKAN & MEMPREDIKSI BIAYA
Cost Function / Fungsi Biaya suatu fungsi
yang menggambarkan hubungan antara
jumlah output dan variabel lain yang dapat
dikontrol oleh perusahaan
Fungsi tersebut dapat diperoleh dengan
menggunakan data perusahaan individual
dalam suatu industri
7.7 MEMPERKIRAKAN & MEMPREDIKSI BIAYA
FUNGSI BIAYA DAN PENGUKURAN INDEKS SKALA EKONOMI
(SCALE ECONOMICS INDEX / SCI)
7.7 MEMPERKIRAKAN & MEMPREDIKSI BIAYA
SC = Negatif
The Degree of Economies of Scope
SC = Positif