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1
PRODUKSI DAN BIAYA PRODUKSI
UNIVERSITAS GUNADARMA
MAGISTER MANAJEMEN
2007
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Produksi dan Biaya-biaya
Sasaran hasil:Untuk menguji hubungan antara keluaran dan masukan
Untuk mengidentifikasi faktor penentu biaya yang paling utama per unit
pemanfaatan kapasitas ekonomi skala ekonomilingkup ekonomiMempelajari efek-efek yang terjadi
Untuk mengidentifikasi berbagai kesulitan yang dihadapi di dalam penilaian empiris dari efek-efek ini
Untuk menjelaskan corak biaya-biaya yang tidak biasa di sektor informasi
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OVERVIEW
– Production Functions– Total, Marginal, and Average Product– Law of Diminishing Returns to a Factor– Input Combination Choice– Marginal Revenue Product and Optimal Employment– Optimal Combination of Multiple Inputs– Optimal Levels of Multiple Inputs– Returns to Scale– Production Function Estimation– Productivity Measurement
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KEY CONCEPTS
• production function• discrete production function• continuous production function• returns to scale• returns to a factor• total product• marginal product• average product• law of diminishing returns• isoquant• technical efficiency• input substitution• marginal rate of technical
• ridge lines• marginal revenue product• economic efficiency• net marginal revenue• isocost curve (or budget line)• constant returns to scale• expansion path • increasing returns to scale• decreasing returns to scale• output elasticity• power production function• productivity growth• labor productivity• multifactor productivity
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Fungsi Produksi
• Bentuk-bentuk Fungsi produksi
• Fungsi produksi ditentukan oleh teknologi, peralatan dan harga masukan.
• Fungsi produksi terpisah
• Fungsi produksi input tenaga kerja
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Returns to Scale and Returns to a Factor
• Returns to scale : mengukur pengaruh output akibat tambahan semua input.
• Returns to a factor : mengukur pengaruh output terhadap tambahan satu input.
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Total, Marginal, and Average Product
• Total Product– Total product is total output.
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Marginal Product
– Marginal product is the change in output caused by increasing input use.
– If MPX=∆Q/∆X> 0, total product is rising.
– If MPX=∆Q/∆X< 0, total product is falling (rare).
• Average product– APX=Q/X.
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Law of Diminishing Returns to a Factor
• Diminishing Returns to a Factor Concept– MPX tends to diminish as X use grows.
– If MPX grew with use of X, there would be no limit to input usage.
– MPX< 0 implies irrational input use (rare).
• Illustration of Diminishing Returns to a Factor
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Input Combination Choice
• Production Isoquants– Technical efficiency is least-cost production.
• Input Factor Substitution– Isoquant shape shows input substitutability.– C-shaped isoquants are common and imply
imperfect substitutability.
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Marginal Rate of Technical Substitution
– MRTSXY=-MPX/MPY
• Rational Limits of Input Substitution– MPX<0 or MPY<0 are never observed.
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Marginal Revenue Product and Optimal Employment
• Marginal Revenue Product– MRPL is the revenue gain after all variable
costs except labor costs.
– MRPL= MPL x MRQ = ∆TR/∆L.
• Optimal Level of a Single Input– Set MRPL=PL to get optimal employment.
• Illustration of Optimal Employment
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Optimal Combination of Multiple Inputs
• Budget Lines– Least-cost production occurs when MPX/PX = MPY/PY
and PX/PY = MPX/MPY
• Expansion Path– Shows efficient input combinations as output grows.
• Illustration of Optimal Input Proportions– Input proportions are optimal when no additional
output could be produce for the same cost. – Optimal input proportions is a necessary but not
sufficient condition for profit maximization.
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Optimal Levels of Multiple Inputs
• Optimal Employment and Profit Maximization– Profits are maximized when MRPX = PX for all
inputs.– Profit maximization requires optimal input
proportions plus an optimal level of output.
• Illustration of Optimal Levels of Multiple Inputs
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Returns to Scale
• Evaluating Returns to Scale– Returns to scale show the output effect of increasing
all inputs.
• Output Elasticity and Returns to Scale– Output elasticity is εQ = ∆Q/Q ÷ ∆Xi/Xi where Xi is
all inputs (labor, capital, etc.) • εQ > 1 implies increasing returns.• εQ = 1 implies constant returns.• εQ < 1 implies decreasing returns.
• Returns to Scale Estimation
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Production Function Estimation
• Cubic Production Functions– Display variable returns to scale.– First increasing, then decreasing returns are
common.
• Power Production Functions– Allow marginal productivity of each input to
vary with employment of all inputs.
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Productivity Measurement
• How Is Productivity Measured?– Productivity measurement is the responsibility of the
Bureau of Labor Statistics (since 1800s).– Productivity growth is the rate of change in output per
unit of input.– Labor productivity is the change in output per worker
hour.
• Uses and Limitations of Productivity Data– Quality changes make productivity measurement
difficult.
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The Relationship Between Inputs and Outputs
• The fundamental relationship is that between inputs and outputs - expressed as the production function
• This can be examined at a number of levels– the economy as a whole– the industry– the firm
• A number of different mathematical forms can be used to model the relationship– Cobb-Douglas: Q = aKaLb
– translog production function
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The Cobb-Douglas Example
• Q = aKaLb : Where K= capital; L = Labour
• As each individual input (K,L) is increased, output increases, but at a decreasing rate - the principle of diminishing returns - one of the most fundamental economic ideas
• A production function identifies many different techniques within the same technology
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The Cobb-Douglas Example
• Q = aKaLb : Where K= capital; L = Labour
• If (a+b) > 1; economies of scale
• If (a+b) < 1; diseconomies of scale
• If (a+b) = 1; constant returns to scale
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How to Find the Cost Minimizing Way to Produce Each Level of Output?
• As a mathematical problem, for level of output Q*• minimiseTC=(w)(L)+(r)(K)• subject to Q*=aKaLb
• As a graphical approach, see the book p.167-170• As a verbal explanation
– the ratio of the wage rate to the cost of capital should be equal to the ratio of the marginal productivity of labour to the marginal productivity of capital: WHY?
– because otherwise $1 could be moved from spending on one input to another and increase output without increasing cost
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From Production Functions to Cost Curves
• Short run - some inputs are fixed. (K). The firm is restricted to a fixed set of plant and equipment– capacity utilisation decisions
• Long run - both inputs are variable. (K,L). The firm can choose the set of plant and equipment it wants– investment decisions
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From Production Functions to Cost Curves
• Short run cost curves• each short run curve shows costs for a specific set of plant and
equipment
• AFC declines
• Average variable cost rises after some point
• AC is U-shaped
• Long run cost curves• the firm can choose from all of the known sets of plant and
equipment
• the shape of the curve depends upon economies or diseconomies of scale
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Economies and diseconomies of scale
• The source of scale economies– in manufacturing, engineering relationships– indivisibilities– specialization and division of labour– stochastic economies
• The source of diseconomies– managerial diseconomies– control loss– transactional problems
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Empirical evidence?
• Statistical approach– production function or cost function
• Engineering approach
• Survivor technique
• BUT THEY ALL EMBODY PROBLEMS
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Statistical approach
• Collect data on size and cost, or on inputs and outputs and fit a production or cost function– but are the observed firms on their cost curve? They may be
above it– how can firms at high cost/inefficient sizes survive? If they
cannot where do we get the data from?– Is the curve fitted a good fit?
• Observed firms may be X-inefficient, so a ‘data envelope’ approach may be required
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The fundamental problem
• What we need to know is:• WHAT COST WOULD BE IF FIRMS WERE
PRODUCING OUTPUT USING THE BEST SET OF PLANT AND EQUIPMENT FOR THE PURPOSE, USING THE CURRENT TECHNOLOGY AND AT CURRENT FACTOR PRICES, AND IF THEY ARE 100% EFFICIENT
• But we cannot observe that by looking at real firms
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Engineering approach
• Ask consulting engineers to design facilities of different sizes and calculate cost– advantage is that it does involve estimating
cost for current technology and best practice– disadvantage is that this approach takes no
account of the MANAGERIAL factors which might cause scale economies
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Survivor technique
• Divide the industry into groups of firms by size– e.g. small, medium, large
• Observe the market share of the different groups over time– if large firms gain share - scale economies– small firms - diseconomies– medium - U-shaped curve
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Can market forces be relied upon to select out the lowest cost firms over
time?
• Firms might have different objectives, different products, different environments, different strategies
• But used in a recent study of the US beer industry (Elzinga 1990)
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Economies of Scope and Learning Effects
• Economies of scope– the production of two or more products
together is more efficient than producing them separately
• Learning Effects– costs fall as cumulative output to date
increases
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Economies of scope
• May arise from the existence of resources which can be shared by different products
• Physical facilities or perhaps ‘core competences’ - but the latter might not be real
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Multi-product Firms
• Multi-product firms complicate the idea of scale economies– ray economies - if costs fall as more is
produced of the same output mix– product-specific economies - if costs fall as
output of a single product increases
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Learning effects• Important in World War 2 - the same plants,
same rate of output but lower costs over time• Most important for complex products and
processes where humans can learn• A possible source of ‘first-mover’ advantages
- important in business strategy• Boston Consulting Group made the
experience curve and learning effects the centre of their approach in the 1970s
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Costs in the information sectors
• Products like software, CDs have unusual cost structures
• Most costs are fixed and also SUNK– they cannot be even partially recovered– ‘first copy’ costs and marketing costs
• Average variable and marginal cost is almost zero
• No natural limits to scale
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Implications of this cost structure
• High sunk costs may be an entry barrier because the cost of exit is low
• Industries where consumers respond strongly to spending on sunk costs - advertising, R&D - tend to be more concentrated
• Competition may force price right down to zero
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Other ‘cost drivers’
• Location
• Timing
• Company policy - what type of product
• Government policy - taxes, subsidies, health and safety
• Vertical integration
• Institutional factors - trade unions, the legal system, corruption etc
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Residual Claimants
• In a market economy, firm owners are residual claimants.– They have the right to any revenue after
costs have been paid.– This provides a strong incentive for
owners to keep the costs of producing output low.
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Methods of Production and Shirking
• Two principal methods of production:– Contracting
• Owner contracts with individual workers who work independently.
– Team Production• Workers are hired by a firm to work together under
supervision.• With team production owners must reduce the problem of shirking
– employees working at less than the normal rate of productivity.
– Example: long coffee break– Owners will attempt to control shirking through both incentives
and monitoring.
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Principal-Agent Problem
• Principal-Agent Problem: The incentive problem that arises when the lack of information makes it difficult for the purchaser (principal) to determine whether the seller (agent) is acting in the principal’s best interest.– Firm owners face this problem when
dealing with employees.
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Three Types of Business Firms• Proprietorship:
– owned by a single individual– make up 72% of the firms in the market, but account
for only 5% of total business revenue• Partnership:
– owned by two or more persons– 8% of the firms; 10% of business revenues
• Corporation: – owned by stockholders– In contrast to the unlimited liability of proprietorships
and partnerships, the owners’ liability is limited to their explicit investment.
– 20% of the firms; 85% of business revenue
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Costs, Competition, & the Corporation• Factors that promote cost efficiency and
customer service but limit shirking by corporate managers include:– competition among firms for investment funds
and customers– compensation and management incentives– the threat of corporate takeover
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The Economic Role of Costs
• The demand for a product indicates the intensity of consumers’ desires for an item.
• Production of a good requires resources. The opportunity cost of these resources represents the desire of consumers for other goods that might have been produced instead.
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• Costs may be either explicit or implicit.
– Explicit costs result when a monetary payment is made.
– Implicit costs involve resources owned by the firm that do not involve a monetary payment.
• Examples: – time spent by owner running the firm– the foregone normal rate of return on
the owner’s financial investment (opportunity cost of equity capital)
Explicit and Implicit Costs
TotalCost = explicit costs implicit costs+
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Accounting and Economic Profit• Economic profit is total revenues minus total costs (including
all opportunity costs).– Economic profit occurs only when the rate of return is
above the normal market rate of return (the opportunity cost of capital).
• Firms earning zero economic profit are earning exactly the market (normal) rate of return.
• Accounting profit is total revenue minus the expenses of the firm over a time period.– often excludes implicit costs such the opportunity cost of
equity capital– Accounting profit is generally greater than economic
profit.
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Accounting versus Economic Profit
Costs (Explicit)Groceries (wholesale) $76,000Utilities 4,000Taxes 6,000Advertising 2,000
Accounting Profit: $70,000
Additional (implicit) costsInterest (personal investment) $7,000Rent (owner's building) 18,000
Economic Profit: -$5,000
Total RevenueSales (groceries) $170,000
Labor (employees) 12,000
Total (explicit) costs $100,000
Salary (owner's labor) 50,000
Total (implicit) costs $75,000
Total Explicit and Implicit costs: $175,000
• To calculate accounting profit, subtract the explicit costs from total revenue.
• To calculate economic profit, subtract both the explicit and implicit costs from total revenue.
• Notice how economic profits are always less than the accounting profits (unless there are no implicit costs).
• What does it mean for economic profits to be negative (as in this example) when accounting profits are positive?
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Optimal Input Procurement
Substantial specialized investments relative to contracting costs?
Spot ExchangeNo
Complex contracting environment relative to costs of integration?
Yes
Vertical Integration
Yes
Contract
No
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The Principal-Agent Problem• Occurs when the principal cannot observe
the effort of the agent– Example: Shareholders (principal) cannot
observe the effort of the manager (agent)– Example: Manager (principal) cannot observe
the effort of workers (agents)
• The Problem: Principal cannot determine whether a bad outcome was the result of the agent’s low effort or due to bad luck
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Solving the Problem Between Owners and Managers
• Internal incentives– Incentive contracts– Stock options, year-end bonuses
• External incentives– Personal reputation– Potential for takeover
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Solving the Problem Between Managers and Workers
• Profit sharing
• Revenue sharing
• Piece rates
• Time clocks and spot checks