FUNGSI PRODUKSI PERTANIAN & BIAYA PRODUKSI PERTANIAN

Disarikan: Prof Dr Ir Soemarno MS Malang, fpub-2008

PRODUKSI dan
BIAYA PRODUKSI

RUANG LINGKUP
1.

2.
3. 4. 5. 6. 7. 8. 9.

Usaha bisnis and the time horizon related problems Total and marginal product Law of diminishing returns Different types of costs: explicit versus implicit costs, and fixed versus variable costs and sunk costs Total cost in terms of total fixed cost and total variable cost Marginal cost The least-cost rule Long-run average total cost curve in terms of economies of scale, constant returns to scale, and diseconomies of scale. Minimum efficient scale (MES) and how many firms will serve a market.

SIFAT USAHA BISNIS

Apakah Unit Usaha Bisnis itu?

An organization, owned and operated by private individuals, that specializes in production

Production

is the process of combining inputs to make outputs

SIFAT USAHA BISNIS

The firm must deal with a variety of individuals and

organizations Sells its output to customers Receives revenue from them in return Every firm must deal with the government Pays taxes to the government Must obey government laws and regulations Receive valuable services from the government
Legal systems Financial systems

Profit = Keuntungan
Where does the revenue go?

Much of it goes to input suppliers The total of all of these payments makes up the firms costs of production

Profit = Revenue Costs

Unit Usaha (Firm) dan Lingkungannya

Owners

Initial Financing Input Costs Input Suppliers Inputs Output

Profit After Taxes Taxes

The Firm (Management)

Government

Government Services Government Regulations Revenue Customers

Produksi
Inputs include resources
Labor Capital Land Raw materials Other goods and services provided by other firms

Way in which these inputs may be combined to produce

output is the firms technology Treated as a given For each different combination of inputs, the production function tells us the maximum quantity of output a firm can produce over some period of time

FUNGSI PRODUKSI

Alternative Input Combinations

Production Function

Different Quantities of Output

Time Horizon: -- The Short Run and the Long Run

Useful to categorize firms decisions into Long-run decisionsinvolves a time horizon long enough for a firm to vary all of its inputs
To

guide the firm over the next several years (long run lens)

Short-run decisionsinvolves any time horizon over which at least one of the firms inputs cannot be varied
To

determine what the firm should do next week ( short run lens)

Produksi dalam Jangka Pendek

There is nothing they can do about their fixed inputs Stuck with whatever quantity they have However, can make choices about their variable inputs Fixed inputs An input whose quantity must remain constant, regardless of how much output is produced For example: Variable input An input whose usage can change as the level of output changes
For

example:

Produksi dalam Jangka Pendek

Total product

Maximum quantity of output that can be produced from a given combination of inputs
Marginal product of labor (MPL) is the change in total

product (Q) divided by the change in the number of workers hired (L)

Q MPL L
Tells us the rise in output produced when one more worker is hired

Total Product and Marginal Product

Units of Output 196 184 161 Total Product DQ from hiring fourth worker

130
90

DQ from hiring third worker

DQ from hiring second worker

30
1 increasing marginal returns

DQ from hiring first worker 2 3 4 5 6 Number of Workers

diminishing marginal returns

Marginal Returns To Labor

As more and more workers are hired

MPL first increases Then decreases Pattern is believed to be typical at many types of firms

Increasing Marginal Returns to Labor

When the marginal product of labor

increases as employment rises, we say there are increasing marginal returns to labor Each time a worker is hired, total output rises by more than it did when the previous worker was hired

Diminishing Returns To Labor

When the marginal product of labor is decreasing

There are diminishing marginal returns to labor Output rises when another worker is added so marginal product is positive But the rise in output is smaller and smaller with each successive worker Law of diminishing (marginal) returns states that as we continue to add more of any one input (holding the other inputs constant) Its marginal product will eventually decline

BIAYA-BIAYA
A firms total cost of producing a given level of output

is the opportunity cost of the owners Explicit (involving actual payments) Money actually paid out for the use of inputs Implicit (no money changes hands) The cost of inputs for which there is no direct money payment This is the core of economists thinking about costs

Biaya dapat diukur dengan satuan Rupiah atau dolar

Economic Profit vs Accounting Profit

Accounting profit

The businesss revenue minus the explicit cost and depreciation Depreciation occurs because machines war out over time Economic profit The businesss revenue minus opportunity cost In economics, profit is simplification of economic profit.

The Irrelevance of Sunk Costs

Sunk cost is one that already has been paid, or

must be paid, regardless of any future action being considered Should not be considered when making decisions Even a future payment can be sunk If an unavoidable commitment to pay it has already been made

Biaya dalam Jangka Pendek

Fixed costs = Biaya Tetap

Costs of a firms fixed inputs Variable costs = Biaya Tidak-tetap Costs of obtaining the firms variable inputs

Measuring Short Run Costs: Total Costs

Types of total costs

Total fixed costs

Cost Cost

of all inputs that are fixed in the short run

Total variable costs

of all variable inputs used in producing a particular level of output

Total cost
Cost

of all inputsfixed and variable TC = TFC + TVC

The Firms Total Cost Curves In The Short Run

Dollars $435

375
315 255 195 135 TFC

TC TVC

TFC
0 30 90 130 161 184 196

Units of Output

Average Costs = Biaya Rata-rata

Average fixed cost (AFC)

Total fixed cost per unit of output produced

TFC AFC Q Average variable cost (TVC)

Total variable cost per unit of output produced

TVC AVC Q Average total cost (TC)

Total cost per unit of output produced

TC ATC Q

Marginal Cost = Biaya Marjinal

Marginal Cost

Increase in total cost from producing one more unit or output Marginal cost is the change in total cost (TC) divided by the change in output (Q)
TC MC Q Tells us how much cost rises per unit increase in output Marginal cost for any change in output is equal to shape of total cost curve along that interval of output

Average And Marginal Costs In The Short Run

Dollars $4

MC

3 AFC

ATC AVC

30

90

130

161

196

Units of Output

Bentuk kurva Biaya Marjinal

When the marginal product of labor (MPL) rises

(falls), marginal cost (MC) falls (rises)

Since MPL ordinarily rises and then falls, MC

will do the oppositeit will fall and then rise Thus, the MC curve is U-shaped

The Relationship Between Average And Marginal Costs

At low levels of output, the MC curve lies below the

AVC and ATC curves These curves will slope downward At higher levels of output, the MC curve will rise above the AVC and ATC curves These curves will slope upward As output increases; the average curves will first slope downward and then slope upward Will have a U-shape MC curve will intersect the minimum points of the AVC and ATC curves

Produksi dan Biaya dlm Jangka Panjang

Goal: earn the highest possible profit

To do this, it must follow the least cost rule To produce any given level of output the firm will choose the input mix with the lowest cost Firm must decide what combination of inputs to use in producing any level of output Long-run total cost (LRTC) The cost of producing each quantity of output when the least-cost input mix is chosen in the long run Long-run average total cost (LRATC) The cost per unit of output in the long run, when all inputs are variable

LRTC LRATC Q

The Relationship Between Long-Run And Short-Run Costs

For some output levels, LRTC is smaller than TC
Long-run total cost of producing a given level of

output can be less than or equal to, but never greater than, short-run total cost (LRTC TC) Long-run average cost of producing a given level of output can be less than or equal to, but never greater than, shortrun average total cost (LRATC ATC)

UKURAN UNIT USAHA

Plant - collection of fixed inputs at a firms

disposal Can distinguish between the long run and the short run In the long run, the firm can change the size of its plant In the short run, it is stuck with its current plant size

Biaya Rata-rata dan Ukuran Init-Usaha

ATC curve tells us how average cost behaves in the

short run, given plant size fixed

moving along the current ATC curve
To produce any level of output in the long run, the firm

will always choose that ATC curve with lowest ATC among all of the ATC curves available
move from one ATC curve to another by varying the size of its plant Will also be moving along its LRATC curve

This insight tells us how we can graph the firms LRATC curve

For each output level, firm will always choose to operate on the ATC curve with the lowest possible cost
Dollars
$4.00 3.00 2.00 ATC1 ATC0 ATC2 C LRATC

Long-Run Average Total Cost

ATC3 D E

B A

1.00
0 30 Use 0 automated lines 90 130 161 184 175 196 Use 2 automated lines 250 300

Use 1 automated lines

Use 3 automated lines

Units of Output

SEKALA EKONOMI
According to whether the LRATC decreases / does

not change / increase as output increases, there are three types of issues: Economies of scale (decreasing LRATC) at relatively low levels of output Constant returns to scale (constant LRATC) at some intermediate levels of output Diseconomies of scale (increasing LRATC) at relatively high levels of output LRATC curves are typically U-shaped

The Shape of LRATC

Dollars $4.00 3.00 2.00 LRATC

1.00
0 130 184

Economies of Scale

Constant Returns to Scale

Diseconomies of Scale
Units of Output

Economies of Scale
An increase in output causes LRATC to decrease

The more output produced, the lower the cost per unit LRATC curve slopes downward Long-run total cost rises proportionately less than output Increasing return to scale Example

Why Should A Firm Experience The Economies of Scale?

Gains from specialization

greatest opportunities for increased specialization at a relatively low level of output More efficient use of lumpy inputs
Some types of inputs cannot be increased in tiny increments, but rather must be increased in large jumps, therefore must be purchased in large lumps Low cost per unit is achieved only at high levels of output More efficient use of lumpy inputs will have more impact on LRATC at low levels of outputs

Diseconomies of Scale
LRATC increases as output increases

LRATC curve slopes upward LRTC rises more than in proportion to output More likely at higher output levels As output continues to increase, most firms will reach a point where bigness begins to cause problems True even in the long run, when the firm is free to increase its plant size as well as its workforce

Using the Theory: Long Run Costs, Market Structure and Mergers
The number of firms in a market is an important

aspect of market structure a general term for the environment in which trading takes place What accounts for these differences in the number of sellers in the market? Shape of the LRATC curve plays an important role in the answer

LRATC and the Size of Firms

Minimum efficient scale (MES) for the firm

Lowest level of output at which it can achieve minimum cost per unit The output level at which the LRATC first hits bottom By comparing the MES (from LRATC curve) for the typical firm and and the maximum potential market (from the market demand curve) we may say something about the market structure

Two Extreme Cases - 1

MES far smaller than market quantities

demanded

firms that are relatively small will have a cost advantage over relatively large firms economies of scale are exhausted rapidly

Market should be populated by many small firms, each producing for only a tiny share of the market Examples: market for personal services Figure 9(a)

Many Small Firms

Dollars
$160 F LRATCTypical Firm

80

DMarket 0 1,000 3,000 100,000 Units per Month

Two Extreme Cases - 2

There are significant economies of scale that continue as output increases Even to the point where a typical firm is supplying the maximum possible quantity demanded This market will gravitate naturally toward monopoly

A single seller in the market Examples: regular mail delivery, city subway system, etc Figure 9(b)

Monopoly
LRATCTypical Firm

Dollars
$160

80 DMarket 0 100,000 Units per Month

Other Cases
In some cases the MES occurs at 25% of the

maximum potential market In this type of market, expect to see a few large competitors Significant lumpy inputs creating economies of scale Until each firm has expanded to produce for a large share of the market Figure 9(c)

A Few Large Firms in the market

Dollars

$200 LRATCTypical Firm

80

E
DMarket 0 25,000 100,000 Units per Month

Other Cases
When both small and large firms can have

equally low average costs with neither having any advantage over the other Firms of varying sizes can coexist Figure 9(d) diseconomies of scale dont set in until output exceeds 10,000 units

Coexistence of Large and Small Firms

Dollars
$160

LRATCTypical Firm

80

F DMarket

1,000

10,000

100,000 Units per Month

The Urge To Merge

If by doubling their output, firms could slide down the

LRATC curve in Figure 9, and enjoy a significant cost advantage over any other, still-smaller firm, they would This is a market that is ripe for a merger wave A sudden merger wave is usually set off by some change in the market Market structure in generaland mergers and acquisitions in particularraise many important issues for public policy Low-cost production can benefit consumersif it results in lower prices

Theory of Production and Costs

Focus- mainly on the the firm.
We will examine

Its production capacity given available resources the related costs involved

What is a firm?
A firm is an entity concerned with the purchase

and employment of resources in the production of various goods and services. Assumptions: the firm aims to maximize its profit with the use of resources that are substitutable to a certain degree the firm is" a price taker in terms of the resources it uses.

FUNGSI PRODUKSI
The production function refers to the physical

relationship between the inputs or resources of a firm and their output of goods and services at a given period of time, ceteris paribus.

The production function is dependent on

different time frames. Firms can produce for a brief or lengthy period of time.

Firms Inputs
Inputs - are resources that contribute in the

production of a commodity. categories: Land, Labor Capital.

Most resources are lumped into three

Fixed vs. Variable Inputs

Fixed inputs -resources used at a constant amount

in the production of a commodity. Variable inputs - resources that can change in quantity depending on the level of output being produced. The longer planning the period, the distinction between fixed and variable inputs disappears, i.e., all inputs are variable in the long run.

Production Analysis with One Variable Input

Total product (Q) refers to the total amount of

output produced in physical units (may refer to, kilograms of sugar, sacks of rice produced, etc) The marginal product (MP) refers to the rate of change in output as an input is changed by one unit, holding all other inputs constant.

DTP L MP L DL

Total vs. Marginal Product

Total Product (TPx) = total amount of output

produced at different levels of inputs Marginal Product (MPx) = rate of change in output as input X is increased by one unit, ceteris paribus.

DTPX MPX DX

Production Function of a Rice Farmer

Units of L 0 1 2 3 4 5 Total Product (QL or TPL) 0 2 6 12 20 26 Marginal Product (MPL) 2 4 6 8 6

6
7 8 9 10

30
32 32 30 26

4
2 0 -2 -4

QL

QL

32
30

26
Total product

QL

20

12

6 2

L
0 1 2 3 4 5 6 Labor 7 8 9 10

FIGURE 5.1. Total product curve. The total product curve shows the behavior of total product vis-a-vis an input (e.g., labor) used in production assuming a certain technological level.

Marginal Product
The marginal product refers to the rate of change in

output as an input is changed by one unit, holding all other inputs constant. Formula:

DTPL MPL DL

Marginal Product
Observe that the marginal product initially

increases, reaches a maximum level, and beyond this point, the marginal product declines, reaches zero, and subsequently becomes negative. The law of diminishing returns states that "as the use of an input increases (with other inputs fixed), a point will eventually be reached at which the resulting additions to output decrease"

Law of Diminishing Marginal Returns

As more and more of an input is added

(given a fixed amount of other inputs), total output may increase; however, as the additions to total output will tend to diminish. Counter-intuitive proof: if the law of diminishing returns does not hold, the worlds supply of food can be produced in a hectare of land.

Average Product (AP)

Average product is a concept commonly associated

with efficiency. The average product measures the total output per unit of input used. The "productivity" of an input is usually expressed in terms of its average product. The greater the value of average product, the higher the efficiency in physical terms. Formula: TP L AP L L

TABLE 5.2.
Labor (L)

Average product of labor.

Total product of labor (TPL) Average product of labor (APL)

0 1 2 3 4 5 6 7 8 9 10

0 2 6 12 20 26 30 32 32 30 26

0 2 3 4 5 5.2 5 4.5 4 3.3 2.6

The slope of the line from the origin is a measure of the AVERAGE
Y

Slope =

rise Y run L

Rise = Y

Run = L

L1

L2

Total Product
Q

The average product at b is highest. AP at c is less than at a. AP at d is less than at c.

b c d QL

Highest Slope of Line from Origin

Max APL

Inflection point
Max MPL

TPL

L1

L2

L3

Relationship between Average and Marginal Curves: Rule of Thumb

When the marginal is less than the average,

the average decreases. When the marginal is equal to the average, the average does not change (it is either at maximum or minimum) When the marginal is greater than the average, the average increases

Relationship between Average and Marginal Curves: Example of Econ 11 Scores

When the marginal score (new exam) is less

than your average score, the average decreases. When the marginal score (new exam) is equal to the average score, the average does not change. When the marginal score (new exam) is greater than your average score, the average increases.

AP,MP

At Max AP, MP=AP

Max MPL Max APL

APL

L1

L2

L3
MPL

TP

TPL

0
Stage I

L1
MP>AP AP increasing

L2
Stage II
MP<AP AP decreasing MP still positive

L3
Stage III
MP<0 AP decreasing

AP,MP

APL

L1

L2

L3
MPL

Three Stages of Production

In Stage I

APL is increasing so MP>AP. All the product curves are increasing Stage I stops where APL reaches its maximum at point A. MP peaks and then declines at point C and beyond, so the law of diminishing returns begins to manifest at this stage

Three Stages of Production

Stage II

starts where the APL of the input begins to decline. QL still continues to increase, although at a decreasing rate, and in fact reaches a maximum Marginal product is continuously declining and reaches zero at point D, as additional labor inputs are employed.

Three Stages of Production

Stage III starts where the MPL has turned

negative. all product curves are decreasing. total output starts falling even as the input is increased

Biaya Produksi
Opportunity Cost Principle - the economic cost of

an input used in a production process is the value of output sacrificed elsewhere. The opportunity cost of an input is the value of foregone income in best alternative employment. Implicit vs. Explicit Costs Explicit costs costs paid in cash Implicit cost imputed cost of self-owned or self employed resources based on their opportunity costs.

7 Cost Concepts (Short-run)

1. Total Fixed Cost
2. 3.

4.
5. 6. 7.

(TFC) Total Variable Cost (TVC) Total Cost (TC=TVC+TFC) Average Fixed Cost (AFC=TFC/Q) Average Variable Cost (AVC=TVC/Q) Average Total Cost (AC=AFC+AVC) Marginal Cost (MC= AVC/Q

Analysis Jangka Pendek

Total fixed cost (TFC) is more commonly

referred to as "sunk cost" or "overhead cost." Examples: include the payment or rent for land, buildings and machinery. The fixed cost is independent of the level of output produced. Graphically, depicted as a horizontal line

Short Run Analysis

Total variable cost (TVC) refers to the cost

that changes as the amount of output produced is changed. Examples - purchases of raw materials, payments to workers, electricity bills, fuel and power costs. Total variable cost increases as the amount of output increases. If no output is produced, then total

Short Run Analysis

Total cost (TC) is the sum of total fixed cost

and total variable cost

TC=TFC+TVC
As the level of output increases, total cost of the firm also increases.

Total Costs of Production

Units of Labor
L

Total Product
TPL

Total Fixed Cost

TFC

Total Variable Cost

TVC

Total Cost
TC 100 130 150 160 165 175 195 225 265 315 375 0

Marginal Cost
MC 30 20 10 5 10 20 30 40 50 60

Average Cost
AC 130 75 53.3 41.25 35 32.5 32.14 33.12 35 37.5

0 1 2 3 4 5 6 7 8 9 10

0 6 10 12 13 15 19 25 33 43 55

100 100 100 100 100 100 100 100 100 100 100

30 50 60 65 75 95 125 165 215 275

Pesos

TC
(Total Cost)

TVC
(Total Variable Cost)

TFC
(Total Fixed Cost)

0 TOTAL COST CURVES

Pesos

AFC=TFC/Q.

As more output is produced, the Average Fixed Cost decreases.

AFC
(Average Fixed Cost)

Pesos

The Average Variable Cost at a point on the TVC curve is measured by the slope of the line from the origin to that point.
AVC=TVC/Q

TVC
(Total Variable Cost)

Minimum AVC

q1

Pesos

Inflection point

TVC
(Total Variable Cost)

q1 MC
(Marginal Cost)

q1

Pesos
The Average Variable Cost is U shaped. First it decreases, reaches a minimum and then increases. AVC
(Average Variable Cost)

Minimum AVC

q1

Pesos

The Marginal Cost curve passes through the minimum point of the AVC curve.
MC (Marginal Cost)

It is also U-shaped. First it decreases, reaches a minimum and then increases.

AVC
(Average Variable Cost)

Minimum AVC

q1

Pesos

MC AC

AVC

AFC 0 q1 Q

The PER UNIT COST CURVES

Average Cost of Production

(Q)
0 1 2 3 4 5 6 7

(TC)
100 130 150 160 165 175 195 225

(AC)
130.00 75.00 53.33 41.25 35.00 32.50 32.14

8
9 10

265
315 375

33.13
35.00 37.50

Average Variable Costs of Production

Total Product (Q) 0 1

Total Variable Cost (AVC) 0 30

Average Variable Cost (AVC) 0 30.0

2
3 4 5 6 7 8 9 10

50
60 65 75 95 125 165 215 275

25.0
20.0 16.3 15.0 15.8 17.9 20.6 23.9 27.5

LTC
All inputs are variable in the long run. There are no fixed costs.

LTC

Long Run Total Cost

Total Product

LONG-RUN TOTAL COST CURVE

The LAC
The LAC curve is an envelop curve of all

possible plant sizes. Also known as planning curve It traces the lowest average cost of producing each level of output. It is U-shaped because of Economies of Scale Diseconomies of Scale

COST

LAC SAC1 SAC2

LONG-RUN AVERAGE COST CURVE

COST

SAC1

LAC

0 q0

COST

Building a larger sized plant (size 2) will result in a lower average cost of producing q0
SAC1 SAC2 LAC

0 q0

COST

Likewise, a larger sized plant (size 3) will result to a lower average cost of producing q1
SAC1 SAC2 SAC3 LAC

0 q0 q1

Economies and Diseconomies of Scale

Economies of Scale- long run average cost

decreases as output increases. Technological factors Specialization

Diseconomies of Scale: - long run average

cost increases as output increases. Problems with management becomes costly, unwieldy

COST

LAC SAC1 SAC2

Economies of Scale
0 Q1

Diseconomies of Scale
Q

LONG-RUN AVERAGE COST CURVE

LONG-RUN AVERAGE and MARGINAL COST CURVES

LMC

COST
SMC2

LAC

SMC1

SAC1

SAC2

Q1

LAC and LMC

Long-run Average Cost (LAC) curve

is U-shaped. the envelope of all the short-run average cost curves; driven by economies and diseconomies of size. Long-run Marginal Cost (LMC) curve Also U-shaped; intersects LAC at LACs minimum point.