FOREIGN TRADE UNIVERSITY

PRODUCER THEORY

MPA PHẠM PHƯƠNG THẢO

 CONTENT
I. The theory of production

II. Cost theory

III. Profit theory

 I. THE
THEORY OF
PRODUCTION
1. SOME CONCEPTS
 1. SOME CONCEPTS

• Short-term is • Long-term is
 2. PRODUCTION FUNCTION

The production function

2.1. PRODUCTION WITH A VARIABLE INPUT
(SHORT-TERM)
 2.1.1. TOTAL PRODUCTS, AVERAGE PRODUCTS AND
MARGINAL PRODUCTS

• Total product (Q) is

Average Product (AP)

 2.1.1. TOTAL PRODUCTS, AVERAGE PRODUCTS AND
MARGINAL PRODUCTS

Marginal productivity of labor/ marginal product:

In case of short-term production, capital (K) is a fixed

factor, labor (L) changes:
2.1.2 RELATIONSHIP BETWEEN Q, MP, AND AP AND
DECLINING MARGINAL PRODUCTIVITY RULES
2.1.2 RELATIONSHIP BETWEEN Q, MP, AND AP AND
DECLINING MARGINAL PRODUCTIVITY RULES
K L Q APL MPL Stages of
production

10 0 0
10 1 10
10 2 30
10 3 60
10 4 80
10 5 95
10 6 105
10 7 110
10 8 110
10 9 107
10 10 100
 1. SHORT-TERM EXPENSES
1.1. Fixed costs, variable costs,
total costs

Fixed cost (FC) is

Variable cost (VC) is

Total cost (TC) is

1.2. AVERAGE COSTS, MARGINAL COSTS

The average fixed cost (AFC)

is
1.2. AVERAGE COSTS, MARGINAL COSTS

Margin cost (MC) is a

• Where TC is a continuous
function:

• Where TC is a discrete
function:
In the short term, the production costs of the enterprise for example are
Q FC VC
Calculate the TC, AFC, 0 1500 0
10 1500 1000
AVC, ATC, and MC?
20 1500 1900
30 1500 2800
40 1500 3600
50 1500 4600
60 1500 5800
70 1500 7100
80 1500 8600
90 1500 10400
100 1500 12400
1.3. RELATIONSHIP MC, ATC, AND AVC

A.. The relationship between MC and ATC

1.3. RELATIONSHIP MC, ATC, AND AVC

b. Relationship between AVC and MC

2.3. ECONOMIC, ACCOUNTING, AND SUNK COST

Accounting costs
 2.3. ECONOMIC, ACCOUNTING, AND SUNK COST

Economic cost (EC)

EC =
2.3. ECONOMIC, ACCOUNTING, AND SUNK COST
Sunk costs
 1. SOME CONCEPTS

• Average revenue: • Marginal revenue:

• Profit is

p
 2. PROFIT MAXIMISATION
Profit maximization objectives:

Revenue maximization objectives: