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1、CHAPTERTENCostFunctionsInthischapterweillustratethecoststhatafirmincurswhenitproducesoutput.InChapter11,wewillpursuethistopicfurtherbyshowinghowfirmsmakeprofit-maximizinginputandoutputdecisions.DefinitionsofCostsBeforewecandiscussthetheoryofcosts,somedifficu
2、ltiesabouttheproperdefinitionof‘‘costs’’mustbeclearedup.Specifically,wemustdistinguishbetween(1)accountingcostand(2)economiccost.Theaccountant’sviewofcoststressesout-of-pocketexpenses,his-toricalcosts,depreciation,andotherbookkeepingentries.Theeconomist’s
3、definitionofcost(whichinobviouswaysdrawsonthefundamentalopportunity-costnotion)isthatthecostofanyinputisgivenbythesizeofthepaymentnecessarytokeeptheresourceinitspresentemployment.Alternatively,theeconomiccostofusinganinputiswhatthatinputwouldbepaidinitsn
4、extbestuse.Onewaytodistinguishbetweenthesetwoviewsistoconsiderhowthecostsofvariousinputs(labor,capital,andentrepreneurialservices)aredefinedundereachsystem.LaborcostsEconomistsandaccountantsregardlaborcostsinmuchthesameway.Toaccountants,expendituresonlab
5、orarecurrentexpensesandhencecostsofproduction.Forecono-mists,laborisanexplicitcost.Laborservices(labor-hours)arecontractedatsomehourlywagerate(w),anditisusuallyassumedthatthisisalsowhatthelaborserviceswouldearnintheirbestalternativeemployment.Thehourlyw
6、age,ofcourse,includescostsoffringebenefitsprovidedtoemployees.CapitalcostsInthecaseofcapitalservices(machine-hours),thetwoconceptsofcostdiffer.Incalcu-latingcapitalcosts,accountantsusethehistoricalpriceoftheparticularmachineunderinvestigationandapplysome
7、more-or-lessarbitrarydepreciationruletodeterminehowmuchofthatmachine’soriginalpricetochargetocurrentcosts.Economistsregardthehistoricalpriceofamachineasa‘‘sunkcost,’’whichisirrelevanttooutputdecisions.Theyinsteadregardtheimplicitcostofthemachinetobewhat
8、someoneelsewouldbewillingtopayforitsuse.Thus,thecostofonemachine-houristherentalrateforthatmachineinitsbestalternativeuse.Bycontinuingtousethemachineitself,thefirmis333334Part4:ProductionandSupplyimplicitlyforgoingwhatsomeoneelsew
