A Level Economics Model Essay Answer 經(jīng)濟學(xué)范文資料

1、精品文檔ALevelModelAnswer:TheoryoftheFirmInproduction,adistinctionismadebetweenshort-runcostcurvesandlong-runcostcurves.Usingappropriatecostcurvediagrams,explainthisdistinction.(12marks)Thecoststhatafirmincurscanbeseparatedintofixedcostsandvariablecosts,whichtogethermakeupafirmstotalcosts.Fixedcostsrema

2、inconstantregardlessofquantityoutputforexample,therentpaidonafactoryusedwhenproducingagood.Variablecostschangeasoutputincreasesordecreases.Anexampleisthewagecostoflabour.Toproducemoreoutput,thefirmhiresmorelabour,andhasincreasedwagecosts.Themorevariableinputsafirmuses,thegreaterthetotalvariablecosts

3、.Inmicroeconomics,theshort-runreferstotheperiodoftimeinwhichatleastonefactorofproduction(usuallyland,labourand/orcapital)isfixed.Forexample,thetimeittakesforacontractwithapropertyownertoendbeforethefirmcanmovetoadifferentlocation.Figure1Short-runcostcurvesInFigure1,theAFCcurveindicatesthataveragefix

4、edcostfallscontinuouslyasoutputincreases,becauseitrepresentstheamountoftotalfixedcostsdividedbyanevergrowingquantityofoutput.Theaveragevariablecost,averagetotalcostandmarginalcostcurves,althoughdifferentfromoneother,allfollowthesamegeneralpattern:atfirsttheyfall,reachaminimum,andthentheybegintorise.

5、Marginalcostriseswiththeamountofoutputproduced,reflectingthepropertyofdiminishingmarginalproductasunitsofoneinputareadded(withotherinputsheldconstant)apointwillbereachedwheretheresultingadditionstooutputwillbegintodecrease(marginalproductwilldecline).Considerthelimitedsizeofthefactorydiscussedearlie

6、rwecankeepaddingmoreandmorevariableinputs(suchaslabour)but,constrainedbythelimitedspace,wewilleventuallyseenofurtherincreasesinoutputandoutputmayevenstarttofallduetoovercrowdingofthefixedfactor(s).Thusthecostofproducinganadditionalcostcontinuestoriseeventhoughthefirmmaybegainingnobenefitintermsofinc

7、reasedoutput.Inthelong-run,allfactorsofproductionbecomevariableintheexamplegiven,thefirmcanmovetoabiggerorlessexpensivefactory.Becausemanycostsarefixedintheshortrunbutvariableinthelongrun,afirmslong-runcostcurvesdifferfromitsshort-runcostcurves.Asthefirmplansitsfutureactivitiesinthelongrun,itcansele

8、ctanysizeorscaleofoperationdependingonthequantityofoutputitisaimingfor.Theparticularsizeitselectswillbetheonethatminimisescostsforthatlevelofoutput.Thelong-runaveragetotalcurveisthecurvethatistangenttoeachoftheshort-runcostcurves.Longrunaveragetotalcostsrepresentthelowestpossibleaveragecost,orcostpe

9、runitofoutput,foreverylevelofoutput,whenallresourcesarevariable.精品文檔精品文檔Figure2Long-runaveragetotalcostcurvesTheU-shapeofthelong-runATCcurveisaresultofeconomiesanddiseconomiesofscale.Economiesofscalerefertothebenefitsintermsoffallingaveragetotalcostgainedfromlargescaleproduction,occurringforanumbero

10、freasons.Firstly,asthescaleofproductionincreases,moreworkersmustbeemployed,allowingforgreaterlabourspecialisation.Aseachworkerspecialisesinanarrowerrangeoftasksthatmakeuseofexistingskills,anddevelopskillsthroughrepetition,workerefficiencyisincreased,allowingoutputtobeproducedataloweraveragecost.Larg

11、erscalesofproductionallowformoremanagerstobeemployed,eachofwhomcanbespecialisedinaparticulararea,againresultingingreaterefficiencyandloweraveragecost.Largemachinesareoftenmoreefficientthansmallerones.However,asmallfirmwithasmallvolumeofoutputcannotmakeeffectiveuseoflargemachines,andsoisforcedtousesm

12、aller,lessefficientones.Somemachinesareonlyavailableinlargesizesthatrequirelargevolumesofoutputinordertobeusedeffectively.Someproductionprocesses,suchasmassproductionassemblylines,requirelargevolumesofinputsandoutputinordertobeusedefficiently.Costsofcertainactivitiessuchasadvertising,design,research

13、anddevelopmentresultinloweraveragecostsiftheycanbespreadoverlargevolumesofoutput.However,asafirmincreasesitsscaleofproduction,costsperunitofoutputmayeventuallystarttoincrease.Asafirmgrows,managementfacesco-ordinationdifficulties.Communicationanddecision-makingwillbeslower.Staffmayfeelalienatedinalar

14、georganisationandunlesstheyaremonitoredeffectively,thequalityandoutputoftheirworkmaydecline.Evaluatetheviewthatproductiveandallocativeefficiencyismorelikelytobeachievedinperfectlycompetitiveindustriesthanmonopolies.13marksProductiveefficiencyoccurswhenproductiontakesplaceatthelowestpossiblecost.Allo

15、cativeefficiencyoccurswhenfirmsproducetheparticularcombinationofgoodsandservicesthatconsumersprefer.Itisachievedwhenpriceequalsmarginalcost.Thisisbecausethepricepaidbyconsumerstoacquireagoodreflectsthemarginalbenefittheyderivefromconsumptionofanadditionalofthegoodandshowstheamountofmoneytheyarewilli

16、ngtopaytobuyonemoreunit.精品文檔精品文檔Marginalcostmeasuresthevalue,oropportunitycost,oftheresourcesusedtoproduceoneextraunitofthegood.Whenpriceisequaltomarginalcost,therefore,whatconsumersarepreparedtopaytogetonemoreunitandwhatitcoststoproduceonemoreunitareequal.Figure3Long-runequilibriumpositionofafirmin

17、aperfectlycompetitiveindustry.Figure3showsthefirminacompetitiveindustryearnszeroeconomicprofitinthelong-run.Thus,theperfectlycompetitivefirmachievesbothallocativeandproductiveefficiency.Asthecompetitivefirmmustacceptthemarketprice,priceequalsaveragerevenueandmarginalrevenueandthesupplycurvefacingthe

18、firmisperfectlyelasticatthemarketprice.Theprofit-maximisinglevelofoutputissetwhereprice(marginalrevenue)equalsmarginalcost(allocativeefficiencyisachieved)andaveragetotalcostisminimised(productiveefficiencyisachieved).Themonopolist,astheonlysupplierinthemarket,canrestrictsupplyandchargeahigherpriceto

19、consumerstomaximiseprofit(seeFigure4).Figure4Monopolyprice,outputandprofitHigherpricesandloweroutputarenotinconsumersbestinterests.TheareaBCDrepresentsthiswelfareloss,indicatingthereisallocativeinefficiency.Somemonopolists精品文檔精品文檔achieveproductiveefficiencybecausetheymayoutputwhereaveragetotalcostis

20、minimised(althoughthisisnotalwaysthecase).Naturalmonopoliesexistwhenanindustrycanonlysupportonefirmproducingatefficientscaleforexample,utilitycompaniessuchastapwaterproviders.Lackofcompetitioninmonopolymayleadtohighercosts(X-inefficiency).Whereasinperfectcompetitionfirmsareunderconstantpressuretoproducewiththelowestpossiblecoststosurvive,inmonopolythelackofcompetitionmaymakethemonopolistlessconcernedaboutkeepingcostslow.Highercostsmayarisedueapoorlymotivatedworkforceandlackofinnovationduetolackofcompetitivepressure.Nevertheless,monopoliescanbedesirablefromth