I found a Microeconomics Unicorn! See the chart here.

A rare treat for an economics teacher.  A chart that quantifies (not completely but enough) the difference between "Economic Costs" which include opportunity costs (implicit costs) as well as money costs (explicit costs), and "Accounting Costs" which include ONLY money costs. 

Source: USDA ERS

Costs of production for U.S. milk decline as the size of the dairy operation (measured by the number of cows) increases.  Based on 2013 data, average total economic costs of milk production—a measure that includes the opportunity costs of land, labor, and other owned resources—fell by nearly 60 percent, from an average of about $50 per hundredweight (cwt) for producers with fewer than 50 cows to about $20 per cwt for those with 1,000 cows or more. Average costs are lower on larger farms because fixed cost items, such as management, land, and other resource costs, are spread across a larger number of cows, and because average output per cow increases along with farm size. Mean output per cow was just over 15,000 pounds among operations with less than 50 cows, while operations with 1,000 or more head averaged more than 23,000 pounds per cow. Higher milk yields on larger farms stem from factors such as better breeding, nutrition, and health management, as well as the ability to access competitively priced supplies of high quality feed inputs.  This chart is based on data found in Milk Cost of Production Estimates. 

This is a key concept in AP Microeconomics that is somewhat difficult to convey to high school aged students.

The vertical difference between the RED and BLUE lines represents the Opportunity Costs to the producer for staying in business.

The price or Marginal Revenue (MR) or Average Revenue (AR), a producer receives must at least equal the RED line for her to "Break Even".  

However, she could still make an Accounting Profit at that price.  Is she?

According to the USDA ERS (HERE) the average price for "all classes of milk" was $20.05 per CWT) in 2013.  Now look back at the graph and draw a straight line across the $20.00 mark denoted on the vertical axis.  Compare that to the RED and BLUE lines.

At that price ONLY the large producers (1000 or more milk cows) are Breaking Even in "Economic" terms BUT making profit in "Accounting" terms.

Notice at about 300 cows the average costs start to drop at a relatively steep rate and production increases quickly.  I assume that is the inflection point where economies of scale really kick in.

Hope this helps with teaching and/or learning about this important concept when the topic of a firm that operates in a "Perfectly Competitive" market.

Nice cost data for a broad array of agricultural commodities. For use in teaching Perfect Competition.

Given my limited editing skills in Excel, I condensed some cost data on various agricultural commodities. All costs are projected costs for the 2014 planting season.

All this and MORE can be found at the terrific US Dept of Agriculture Economic Research center.

It is conveniently organized by cost category:  Variable Costs and Fixed Costs.

What is even more EXTRAORDINARY and helpful when teaching the cost structure of a firm is the fixed costs includes "implicit costs", or Opportunity Costs.

The implicit costs are (1) unpaid labor---the farmers opportunity cost of farming and not doing something else. (2) Capital Recovery (depreciation AND "the rental rate of Capital").  (3) Land---the opportunity cost of using the land for farming the particular commodity as opposed to using it for something else.

Students can quantify and graph the respective cost curves (AVC, AFC, ATC, MC), then find the current market price for a commodity and observe if the "firm/farmer" is making economic profit, loss or "normal profits".  These are all important terms in AP Microeconomics.

Hope this helps in your teaching/learning.

These are the COSTS PER ACRE PLANTED for each commodity.

Nice graphic showing "what is" in terms of electricity generation as opposed to "what should be".

Just a reminder of "what is" in terms of electricity generation in the US (a positive statement), as opposed to "what should be" (a normative statement).  The graphic is from The Wall Street Journal.

"What is" is electricity from fossil fuels totaling 67%, nuclear 19% and all other classes of renewables 13%.

Efficient and effective policies to minimize the first and maximize the third are certainly welcome and needed.

Electricity produced from coal looms large and short of a miraculous technological advancement it will continue to be the dominant source for our immense electricity needs.

It is what keeps the lights on....

Source: The Wall Street Journal

Nice graphic showing "breakdown costs" for the physical/material inputs for Google Glass.

The Wall Street Journal has an article today regarding IHS's "break-down cost" of the much talked about wearable technology Google Glass.

Here is a chart showing the money cost of the tangible physical inputs---the stuff you actually see and touch.

The total material costs are roughly $152.47 (Google disputes this) and the suggested selling price is about $1,500. That is quite a profit, right? Not so fast..

Source: WSJ

Here is an excerpt from the press release from IHS (underline and emphasis mine):

“As in any new product—especially a device that breaks new technological ground—the bill of materials (BOM) cost of Glass represent only a portion of the actual value of the system,” said Andrew Rassweiler, senior director, cost benchmarking services for IHS. “IHS has noted this before in other electronic devices, but this is most dramatically illustrated in Google Glass, where the vast majority of its cost is tied up in non-material costs that include non-recurring engineering (NRE) expenses, extensive software and platform development, as well as tooling costs and other upfront outlays. When you buy Google Glass for $1,500, you are getting far, far more than just $152.47 in parts and manufacturing.”  

The portion I highlighted and underlined is a fancy way of saying these are Google's "Fixed Costs" for the anticipated production of glasses. The fixed costs cited above are costs incurred by Google before they produce even one unit of the wearable technology.

When we include all these up-front fixed costs and produce one set of glasses, well, that first set will be VERY expensive---we allocate the millions spent on research and development to that one set of glasses!

However, because those costs won't change as we produce the second, third...10,000th set of glasses then you can see the "Average Fixed Cost" of producing each additional unit is going to rapidly decrease.  More of that fixed cost is going to be spread out over a larger range of production.

Eventually the fixed costs will be an insignificant portion of the total cost of producing the glasses. The only remaining cost will the the firms "Variable Costs"---materials, labor, advertising, and all other overhead. 

If we add up Google's Total Fixed Costs and Total Variable Costs of producing the Glasses and divide by number they produce we will get the "Average Total Cost" of producing them. 

Compare that number to the number over all ranges of production and subtract it from $1,500 for each unit sold to get their "accounting profit".  

The future looks bright they gotta wear....Does Google Glass come in sunglasses too?

Sriracha Sauces loss is my gain. Nice example to show how a potential change in fixed costs and variable costs affect a firm.

Sriracha sauce maker considers relocation

The makers of the most popular Sriracha sauce (Huy Fong Foods) is facing a dilemma.  A by-product of producing the sauce is an awful smell that permeates the air in the City of Irwindale, California where the manufacturing facility is located.  Area residents don't like it and want something done about it.

The city wants the company to install air-scrubbing technology.  Apparently this is very expensive to do and the company is resisting.

I suppose if the company refuses it can be fined, better yet for our analysis, a "per unit tax" could be levied on each bottle produced.

So, the firm faces the possibility of having to incur a large up front "fixed cost" of installing the equipment or face a small-ish "per unit tax" variable cost on each of the bottles it produces.

Which is better for the firm?

Let's see how this affects the firm in context of how we study it in AP Microeconomics.

I presume Hoy Fung Foods in one of several competitors in the market for Hot Sauce.  As such, I will classify it as operating as a "Monopolistic Competitor".

Here is what the firm graph would look like assuming Hoy Fung Foods is making "Economic Profits" and operating as it has been.

Installing the equipment would be a "fixed cost" for the company.  It is a cost that is incurred regardless of how many bottles of the hot sauce are produced and the cost is spread out over an all the additional bottles produced.  

This affects the AVERAGE TOTAL COST ("ATC*) of producing ONLY and NOT the Marginal Cost ("MC*) of producing each bottle.

This will SHIFT the ATC curve "ATC*" UP to "ATC 1".  The profit maximizing quantity at MR=MC stays the same  at Point "A" (read that again!).   What does change is the firms Economic Profit. 

Where I shifted the "ATC 1" curve, it assumes that it is at "Break Even" (in Economic terms, not Accounting terms) at Point "B".

So, Hoy Fung Foods is breaking even and still producing the same amount of product at Qe and at the same Price consumers are willing and able to pay at "Pe".  Status quo, except for profits!!

What if instead a per unit tax is assessed on each bottle of hot sauce. That would be a small dollar amount for Hoy Fung to absorb, so it MUST be better....right?

A per unit tax affects BOTH the ATC and the Marginal Cost (MC) of producing.  The tax applies to each unit and increases the cost of producing each unit by the amount of the tax. This will shift the ATC curve and the MC curve together.  The MC curve will shift to the LEFT to "MC 1"(or some say "up").

It is kinda hard to see with all the curves, but notice our "Profit Maximizing Quantity" at MR = MC is now at a different spot---Point "A" at "Q1".  Because MC shifted it will intersect Marginal Revenue (MR) at a different spot along the MR curve.  THIS IS KEY!!

Let me clean up the graph above for you.  See below. As a result you can see that the PRICE consumers pay is higher than it was ("P1") and the quantity sold is less too.

BUT is gets worse for the firm.  Notice now that the ATC of producing Q1 bottles of hot sauce is now GREATER than the Price received from consumers (ATC 1 more than P1).  The firm is now incurring Economic LOSSES equal to the area "P1-"C"-"D"- P1".

In this simple analysis holding LOTS of variables constant, we can see that Hoy Fung Foods should probably install the equipment to avoid a per unit tax.  It appears it will be the best outcome for the firm.

While this example might not completely reflect the real time situation, I hope it helps you understand the different way a fixed cost and a variable cost (per unit tax) affects a firm.

This is a must-know concept for the AP Micro test!!

AP Micro Example: Perfect Competition and a change in cost AND Market Price. Does not get better than this!!

For Teachers and/or Students of Microeconomics here is an excellent article you can use to illustrate how changes in variable costs and a change in market price affects a producer ("Firm") that operates in a "Perfectly Competitive" market.
Dairy farmers squeezing white gold from cows

Most milk manufactured in Wisconsin becomes cheese, but it’s also turning into white gold for dairy farmers in America’s Dairyland, because demand has never been higher and prices for it are rising at meteoric rates. 

A dramatic increase in dairy exports and limited milk production have combined to create the near-record high prices dairy farmers are receiving for their milk from customers like cheese producers. 

Combined with the near-record low prices they’re paying for corn to feed their cows, dairy farmers should see increased profits through this year, a leading dairy economist said.
“This is the dairy farmers’ year to enjoy,” said Mark Stephenson, the director of the UW-Madison’s Center for Dairy Profitability. 

Read more: http://host.madison.com/business/dairy-farmers-squeezing-white-gold-from-cows/article_c5ecf6f1-88a3-55e7-98b9-0a60be9857fb.html#ixzz2tm3OU2Mf

Let's go to the GRAPHS!  Each slide has has its own narration so I will let them speak for themselves.  If you see any errors or omissions please let me know. 

I hope this helps you understand changes in costs and prices in a Perfectly Competitive Market.