1

PRODUKSI DAN BIAYA PRODUKSI

UNIVERSITAS GUNADARMA

MAGISTER MANAJEMEN

2007

2

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

3

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

4

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

5

Fungsi Produksi

• Bentuk-bentuk Fungsi produksi

• Fungsi produksi ditentukan oleh teknologi, peralatan dan harga masukan.

• Fungsi produksi terpisah

• Fungsi produksi input tenaga kerja

6

7

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.

8

Total, Marginal, and Average Product

• Total Product– Total product is total output.

9

10

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.

11

12

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

13

14

15

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.

16

17

Marginal Rate of Technical Substitution

– MRTSXY=-MPX/MPY

• Rational Limits of Input Substitution– MPX<0 or MPY<0 are never observed.

18

19

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

20

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.

21

22

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

23

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

24

25

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.

26

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.

27

28

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

29

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

30

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

31

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

32

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

33

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

34

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

35

Empirical evidence?

• Statistical approach– production function or cost function

• Engineering approach

• Survivor technique

• BUT THEY ALL EMBODY PROBLEMS

36

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

37

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

38

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

39

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

40

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)

41

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

42

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

43

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

44

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

45

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

46

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

47

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

48

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.

49

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.

50

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.

51

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

52

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

53

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.

54

• 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+

55

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.

56

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?

57

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

58

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

59

Solving the Problem Between Owners and Managers

• Internal incentives– Incentive contracts– Stock options, year-end bonuses

• External incentives– Personal reputation– Potential for takeover

60

Solving the Problem Between Managers and Workers

• Profit sharing

• Revenue sharing

• Piece rates

• Time clocks and spot checks