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1、bri75829_ch05.qxd8/13/087:07PMPage142ProductionandCostCHAPTER5CHAPTEROUTLINEProductionFunctionsReturnstoScaleReturnstoaFactorChoiceofInputsProductionIsoquantsIsocostLinesCostMinimizationChangesinInputPricesCostsCostCurvesShortRunversusLongRunMinimumEffici
2、entScaleLearningCurvesEconomiesofScopeProfitMaximizationFactorDemandCurvesCostEstimationSummaryAppendix:TheFactor-BalanceEquationheglobaldemandforsteelhasincreasedinrecentyearsdueinparttomajorconstructionprojectsincountries,suchasChinaandIndia.Constructio
3、nTcrewshavebeenparticularlybusyinChinaonprojectsrelatedtothe2008BeijingOlympics,the2010ShanghaiWorldExposition,andnewhousing.Whiletheworldproductionofsteelalsohasincreased,thenetresulthasbeenanin-creaseinsteelpricesfromtheirhistoriclevels.Intheearly1990s
4、,steelsoldforunder$100perton.Atyearend2007,thepricewas$545perton.Thismorethanfivefoldincreaseinthepriceofsteelfarexceedstherateofinflation,whichwasabout50percentoverthesameperiod.Steelpricesnotonlyincreasedoverthisperiodbutalsodisplayedhighvolatility.Inspr
5、ing2002thepricewasaslowas$222,butbyfall2004ithadin-creasedtoabove$700.Itsubsequentlyretreatedtounder$500inlate2005,butbymid-2006approached$650.bri75829_ch05.qxd8/13/087:07PMPage143Chapter5ProductionandCost143Automobilemanufacturersareamajoruserofsteel.Hi
6、ghsteelpricesprovidestrongincentivestothesecompaniestofindwaystomitigatethepriceincrease,forexample,bysubstitutingawayfromsteeltowardrelativelylessexpensiveproductionmaterials.Considertheiractionsduringthe1990swhensteelpricesbegantheirrecentassent.In1994,
7、domesticsteelpricesincreasedastheU.S.economyrecoveredfromarecession.1Indeed,thesteelmarketwasthestrongestithadbeenin20years:Specifically,steelpriceshadrisenfrombelow$90toover$135pertonbetween1992and1994.Aftersignificantpriceincreasesearlierintheyear,domest
8、icsteelcompanieswereplanningtoincreasesheet-steelpricesbyanother10percentatyear’send.Inthetightelectrogalvanizedmar-kets,priceincreasesashighas20percentwereexpected.(Infact,in1995,pricesexceeded$142perton.)Tocountertheeffe
