Lecture Managerial economics (8e): Chapter 6 - Samuelson, Marks

Chapter 6 - Cost analysis. Chapter 6 examines closely related issues concerning the firm’s costs. Managers are continually seeking less costly ways to produce and sell the firm’s goods and services.

Managerial Economics, 8e William F. Samuelson   Stephen G. Marks ●

Chapter SIX

Cost Analysis

 Delete each element of capability until  system capability is totally gone and 

30 percent of the cost will still remain.

 ~Norman Augustine, Augustine’s Laws

For Discussion

Allocating Costs

   A sporting goods firm recently experimented with  producing a new line of shoes: cross­training shoes for  boys 10 to 16 years old.

   How should the company’s fixed costs be allocated  between this new shoe line and other lines?

Opportunity Costs & Economic Profits

Economic Profit

Starting a Business

Fixed and Sunk Costs

Business Behavior—Sunk Costs

Cost of Production

Short­Run Costs

Long­Run Costs

Short­Run versus Long­Run Cost

A Firm’s Total Costs

Figure 6.2

A Firm’s Average and Marginal Costs

Short­Run versus 

Long­Run Cost

Returns to scale  and scope

Returns to Scale

Economies of Scope

E­Commerce and Cost Economies Flexibility and Innovation

U­Shaped, Long­Run Average Cost

Figure 6.5

Three examples 

of Long­Run 

Average Cost

Optimal Decisions

A Single Product

The Shut­Down Rule

Multiple Products

Multiple Products: A Numerical Example

Allocating Costs: Revisited

Figure 6.6

A Firm’s Optimal Output

Shutting Down

Appendix to Chapter 6

TRANSFER PRICING

A Market for Chips

Transfer Pricing: A Numerical Example

Transfer Pricing