#### ch21

UC Riverside, ECON 102
Excerpt: ... Lecture Note 8: Cost curves Average costs Consider cost function c (w1 , w2 , y) that gives the minimum cost of producing output level y when factor prices are (w1 , w2 ). If we take the factor prices to be fixed, we can write cost as a function of y alone, c (y). Total costs of the firm is written as the sum of the variable costs, cv (y), and the fixed costs, F : c (y) = cv (y) + F Average cost function measures the cost per unit of output Average variable cost function measures the variable costs per unit of output Average fixed cost function measures the fixed costs per unit of output AC (y) = = cv (y) + F c (y) = y y cv (y) F + = AV C (y) + AF C (y) y y Average fixed cost decreases as y increases Average variable cost is initially constant or even declining, but eventually increases because of the fixed factors of production Average cost curve is the sum of AFC and AVC and will generally have the U -shape 1 Marginal costs Marginal cost curve measures the change in costs for a given ch ...

#### Chapter_8_Study_Guide_Omissions

Baylor, ECONOMICS 2306
Excerpt: ... ECONOMICS 2306 STUDY GUIDE OMISSIONS/CORRECTIONS CHAPTER 8 Omit the following questions. Answer all of the remaining questions. Omit Completion #11, 14 In completion question #6, change "variable costs" to " average variable cost " Omit T-F #14, 19, 20 Omit M.C. #6, 14, 17-20 In Exhibit 4 on p. 160, the horizontal line drawn at "p" is the demand curve and should be labeled "D" Omit Discussion Questions 2, 4.b., 4.c., 8.b., 9, 13-15 Note: Discussion Question #3 is especially helpful; it is very similar to the homework assignment and will give you additional practice in calculating costs and revenues, in using Rule #1 and Rule #2, and in finding the firm's profit-maximizing (or in this case loss-minimizing) level of output. [Please note that the columns are in a bit different order than those in the textbook examples and in the homework, so don't let that confuse you.] To calculate AVC, you will need to break down TC into its components, FC and VC. You can also use the data for Discussion Question #3 to help you ...

#### lecture 14-long-run-supply

Cornell, ECON 1110
Excerpt: ... abor has increasing marginal productivity. Thereafter, labor has decreasing marginal productivity. Friendly-hacker Production Function 12 10 Weekly Production 8 6 4 2 0 0.00 10.00 20.00 30.00 Labor Input 40.00 50.00 60.00 2007 John M. Abowd and Jennifer P. Wissink, all rights reserved. 9 Short Run Cost Curves Short run cost curves get their shape from the marginal productivity of the variable factor. If capital is held constant (short run) then the marginal product of labor gives the short run cost curves their shape. 2007 John M. Abowd and Jennifer P. Wissink, all rights reserved. 10 The Relations among Seven Short Run Cost Curves Total values FC = fixed costs = PK K where K is fixed VC = variable costs = PLL*(Q) SRTC = short run total costs = FC + VC Average values AFC = average fixed cost = FC/Q AVC = average variable cost = VC/Q SRATC = short run average total cost = SRTC/Q = AFC + AVC Marginal cost SRMC = short run marginal cost = ...

#### solutionsps5

Wisconsin, ECON 101
Excerpt: ... al cost function is TC=500q+5000. ATC=TC/q=500+5000/q, AVC=VC/q=500 and AFC=5000/q. b. The firm should choose a very large output because average total cost will continue to decrease as q is increased. As q becomes infinitely large, ATC will equal \$500. 3. Question 9, page 254 in the book. a. When q=0, TC=200, so fixed cost is equal to 200 (or \$200,000). b. With 100,000 units, q=100. Variable cost is 55q = (55) (100) =5500. Then, average variable cost is TVC/q=5500/100=55 (or \$55,000). c. With constant average variable cost , marginal cost is equal to average variable cost , \$55 (or \$55,000). d. At q=100, average fixed cost is TFC/q = 200/100= 2 (or \$2,000). e. Fixed cost changes from 200 to 250, measured in thousands. Variable cost decreases from 55 to 45, also measured in thousands. Fixed cost also includes interest charges: 3i. The cost function is C=250+45q+3i. 4. Question 11, page 255 in the book. a. The isoquant in convex. The optimal quantities of labor and capital are given by the point where the isocos ...

#### Afternoonmidterm3fall2005

Wisconsin, ECON 101
Excerpt: ... al Cost Average Variable Cost Price=\$45 Q=Output 7. Which of the following best describes the above firm in the short run, if the firm is producing at the profit maximizing point? a. The firm is making a positive economic profit. b. The firm is making a negative economic profit when it produces the profit maximizing output. c. The firm will choose to shut down. d. The firm is breaking even when it produces the profit maximizing output since all perfectly competitive firms break-even. 8. The apple market in the Vegetable Kingdom is perfectly competitive. Currently, the price of apples is \$50 and all firms are producing at the profit maximizing quantity of 10 units. Thus, we can say that marginal cost for each firm is a. \$50. b. \$500. c. \$5. d. \$10. 7 9. What is the minimum-cost output? The quantity of output at which a. Total cost is lowest. b. Average total cost is lowest. c. Average variable cost is lowest. d. Marginal cost is lowest. Please use the following table to answer the next two questions. The ...

#### Week4 portfolio

Auckland University of Technology, 1 YEAR 475130
Excerpt: ... ve Paragraphs in the portfolio folder on AUT online for guidelines). In our economics class in week 3 one of the discussed topics was the law of diminishing returns. As I have taken couple of papers in economics before I can easily understand new concepts, however when it came down to the reason of why average variable cost is normally U shaped I couldnt remember and couldnt really figure out the answer. Our lecturer explained it in a very general way. So I wanted to know the reason behind it and did a Google search. I found an online book where it is extensively explained. According to the authors Campbell R. McConnell and Stanley L. Brue (2002) AVC is U shaped because: At very low levels of output production is relatively inefficient and costly. Because the firms fixed plant is understaffed, average variable cost is relatively high. As output expands, however, greater specialisation and better use of the firms capital equipment yield more efficiency, and variable cost per unit of output de ...

#### Chapter 13 Notes

Cornell, ECON 1110
Excerpt: ... Marginal product- the rise in output that results from an additional unit of input Diminishing marginal product- the property whereby the marginal product of an input declines as the quantity of input increases Fixed costs vs variable costs -vary depending on level of production average total cost= total cost / quantity of output shows cost of a typical unit average fixed cost= fixed cost / quantity of output average variable cost = variable cost / quantity of output Marginal cost (MC) = change in total cost (TC) / change in quantity (Q) U shaped average total costAverage fixed cost always declines as output rises b/c the fixed cost is getting spread over more units Average variable cost rises b/c of diminishing marginal product Average total cost is sum of both so at diff points it is dropping or rising Efficient scale- the quantity of output that minimizes average total cost Whenever marginal cost is less than average total cost, average total cost is falling Whenever marginal cost is greater than avera ...

#### Reviewch9-12

Purdue, ECON 251
Excerpt: ... ing c. below; rising d. None of the above Short-Run Cost We describe the relationship between output and cost by using three related concepts: 1. Total Cost 2. Average Cost 3. Marginal Cost 1. Total Cost Def. Total Cost The total cost (TC) is the cost of all the factors of production a firm uses. Total cost is separated in Fixed and Variable cost: Def. Fixed Cost (FC) The fixed cost is the cost of the firm's fixed factors. Def. Variable Cost (VC) The variable cost is the cost of the firm's variable factors. TC=FC+VC 2. Average Cost Def. Average Total Cost (ATC) The average total cost (ATC) is the total cost per unit of output. ATC= TC Q The total cost is separated in Average Fixed Cost and Average Variable Cost : Def. Average Fixed Cost (AFC) The average fixed cost is the total fixed cost per unit of output. AFC= Def. Average Variable Cost (AVC) The average variable cost is the total variable cost per unit of output. AVC= 3. Marginal Cost Def. Marginal Cost (MC) The marginal cost is the increase i ...

#### 723lecture8

Syracuse, PPA 723
Excerpt: ... Fixed cost- the production expenses of the firm that do not vary with output. Costs of inputs the firm can not feasibly vary in the short term. Variable cost- production expenses that change with the quantity of output produced. Total cost is variable cost plus fixed cost. Three average cost measures are derived from the fact that: TC=VC+FC. Divide through by q. (TC)/q is average cost. Total cost divided by units of output produced. (VC)/q is average variable cost . Variable cost divided by units of output produced. (FC)/q is average fixed cost. Fixed cost divided by units of output produce. AC=AVC+AFC In addition, we can add in one more cost concept. Marginal cost is the amount by which the firms cost changes in order to produce one more unit of output. MC C VC q q WARNING - FOR THE FIRST TIME, WE ARE PUTTING CHANGE IN Q or Q IN THE DENOMINATOR. THIS IS IMPORTANT TO KEEP TRACK OF. Example from the book Output Fixed Cost Variable Cost Total Cost 48 73 Marginal Cost AFC AVC AC 0 ...

#### PPA723Lecture8

Syracuse, PPA 723
Excerpt: ... st- the production expenses of the firm that do not vary with output. Costs of inputs the firm can not feasibly vary in the short term. Variable cost- production expenses that change with the quantity of output produced. Total cost is variable cost plus fixed cost. Three average cost measures are derived from the fact that: TC=VC+FC. Divide through by q. (TC)/q is average cost. Total cost divided by units of output produced. (VC)/q is average variable cost . Variable cost divided by units of output produced. (FC)/q is average fixed cost. Fixed cost divided by units of output produce. AC=AVC+AFC In addition, we can add in one more cost concept. Marginal cost is the amount by which the firm's cost changes in order to produce one more unit of output. MC C VC q q WARNING - FOR THE FIRST TIME, WE ARE PUTTING CHANGE IN Q or Q IN THE DENOMINATOR. THIS IS IMPORTANT TO KEEP TRACK OF. Example from the book Output Fixed Cost Variable Cost Total Cost 48 73 Marginal Cost AFC AVC AC 0 1 2 3 4 5 6 7 8 9 48 48 48 ...

#### Econ101October19

Cornell, ECON 1110
Excerpt: ... Econ 101 I. October 19, 2007 Long run vs. Short Run a. Long run measures quantities of a good or service offered for sale by all sellers i. Number of firms is variable ii. All sellers = actual and potential iii. Long run is more elastic b. Short run supply curve the number of firms is consistent i. Cannot changed fixed factors c. Assumptions of the market i. Perfect competition 1. Firms are price takers 2. Firms can enter/exit market freely ii. Firms are identical Values a. Total Values i. FC = Fixed Costs ii. VC = Variable Costs iii. SRTC = Short run Total Cost = FC + VC b. Average Values i. AFC = Average fixed costs = FC/Q ii. AVC = Average variable cost s = VC/Q iii. SRATC = Short Run average total cost = SRTC/Q = AFC +AVC c. Marginal Cost i. SRMC = Short Run Marginal Cost = dSRTC/dQ = dVC/dQ d. MB = MC (Marginal Benefit = Marginal Cost) i. If you are given the MC for each unit and given the price, how do you find MB = MC? 1. Firms Marginal revenue = additional revenue by selling one extra unit of good 2 ...

#### Class Notes - 11-2-07

Allegheny, ECON 100
Excerpt: ... Microeconomics Class Notes 11/2/07 CHAPTER #8 I. Average Costs A. Cost Review a. Profit = TR TC b. TC = FC + VC c. MC = (the change in total cost) / (the change in Q) B. Average Total Cost (ATC) a. Cost per unit of output b. ATC = (TC / Q) i. Different from Marginal Cost (ATC does not incorporate changes) c. Also can calculate it this way: i. ATC = AFC + AVC C. Average Fixed Cost (AFC) a. AFC = (FC / Q) D. Average Variable Cost (AVC) a. AVC = (VC / Q) E. Problems: a. See binder ...

#### ch10

UWO, ECON 1020
Excerpt: ... 's fixed inputs. Total fixed cost does not change as output changes. o Total variable cost (TVC) is the cost of the firm's variable inputs. Total variable cost changes as output changes. TC = TFC + TVC A firm's marginal cost is the increase in total cost that results from a one-unit increase in output. It is calculated as the increase in total cost divided by the increase in output. Average fixed cost (AFC) is total fixed cost per unit of output. Average variable cost (AVC) is total variable cost per unit of output. Average total cost (ATC) is total cost per unit of output. Figure 10.4 in your textbook shows the total cost curves for Cindy's Sweaters. TFC is constant. TC is the sum of TFC and TVC. ATC = AFC + AVC Figure 10.5 shows the average cost curves and the marginal cost curve. ATC is the sum of AVC and AFC. minimum points. MC intersects ATC and AVC at their When marginal cost is less than average cost, average cost is decreasing. When marginal cost exceeds average cost, a ...

#### econ - problem set 7_ProblemSet

Cornell, ECON 101
Excerpt: ... rrect Answer: Feedback: implicit costs. implicit costs. 0 of 5 point(s) implicit costs. Question 17 Multiple Choice When price is below average variable cost , a firm in a competitive market will Your Answer: continue to operate as long as average revenue exceeds average fixed cost. shut down and incur fixed costs. Correct Answer: Feedback: shut down and incur fixed costs. 0 of 5 point(s) Question 18 Multiple Choice The market for craft art used in home decoration is a very competitive market. In this market, costs vary since some people work faster than others and have more artistic talent in producing craft art. In this competitive market, we would expect to observe Your Answer: Correct Answer: Feedback: an upward sloping long-run supply curve. little exit and entry. little exit and entry. Question 19 Multiple Choice 0 of 5 point(s) In the long-run equilibrium of a market with free entry and exit, Your Answer: Correct Answer: Feedback: the price of the good exceeds average total cost. firms a ...

#### more_problems_week6

Wisconsin, ECON 101
Excerpt: ... TA: Michael Kim Problems for Section Lecture 11 (10/9) Producer choice: Technology and cost. 1. When marginal cost is below average variable cost , average variable cost must be: 2. A firm has a fixed production cost of \$5000 and a constant marginal cost of production of \$500 per unit produced. What is the firm's total cost function? Average variable cost ? Average total cost? If the firm wanted to minimize the average total cost, would it choose to be very large of very small? 3. When Mike's brewery produces 20 bottles of (root)beer, the total cost is \$10. When 21 bottles of beer are produced, the total cost rises to \$12. From this we know that: the marginal cost of the 21th bottle of beer is _ than the average cost of 21 bottles of beer. 4. Assume that the firm is in a perfectly competitive market. The marginal cost curve will cut the average cost curve at its _ point. In a perfectly competitive market a firm that produces in the short will face a price that is _ the point at which the average ...

#### more_problems_week6

Wisconsin, ECON 101
Excerpt: ... TA: Michael Kim Problems for Section Lecture 11 (10/9) Producer choice: Technology and cost. 1. When marginal cost is below average variable cost , average variable cost must be: 2. A firm has a fixed production cost of \$5000 and a constant marginal cost of production of \$500 per unit produced. What is the firm's total cost function? Average variable cost ? Average total cost? If the firm wanted to minimize the average total cost, would it choose to be very large of very small? 3. When Mike's brewery produces 20 bottles of (root)beer, the total cost is \$10. When 21 bottles of beer are produced, the total cost rises to \$12. From this we know that: the marginal cost of the 21th bottle of beer is _ than the average cost of 21 bottles of beer. 4. Assume that the firm is in a perfectly competitive market. The marginal cost curve will cut the average cost curve at its _ point. In a perfectly competitive market a firm that produces in the short will face a price that is _ the point at which the average ...

#### Study_Guide_2

Excerpt: ... worth it to hire another worker because the price to have another worker is more than how much he will increase revenue -Total Physical Product how much you are producing -Marginal Physical Product extra output for hiring another worker Study Guide 2, Economics 200, 3 -Shut down point lowest point of average variable cost -Break-even point lowest point of average total cost -Returns to Scale (Increasing, Constant, Decreasing) 4 characteristics of Perfect Competition 1) Many sellers and a lot of buyers 2) Homogenous product = same quality/different sellers 3) Sellers don't have market power; can't change prices Graph and relate i. Total Cost, Total Revenue (including profit maximization point) ii. Average Total Cost, Average Variable Cost s, Marginal Costs, Marginal Revenue (including shut-down and break-even points and profit maximization point) Marginal cost = difference in total cost as quantity goes up AFC = FC/Q AVC = VC/Q ATC = TC/Q Lowest point of ATC and AVC are on marginal cost curve Ever ...

#### Profit A

Boise State, MATH 160
Excerpt: ... CHAPTER 10 THE FIRM IN THE SHORT-RUN PART I OF LECTURE: PROFIT MAXIMIZE PROFIT: OR: PROFIT MUST NOT BE NEGATIVE: SR DEMAND FOR LABOR: PART II OF LECTURE: SHORT-RUN PROFIT IN FOUR QUADRANT DIAGRAM Production Function Cost Function Average and Marginal Products Average and Marginal Costs AUGMENTED AVERAGE AND MARGINAL COST FUNCTIONS FOR 4 QUADRANT DIAGRAM AVERAGE AND MARGINAL COST FUNCTIONS WITH PROFIT SHOWN IN SHADED AREA PART III: SHOW PROFIT MAXIMIZATION ON THE TOTAL COST DIAGRAM Production Function Cost Function Average and Marginal Products Average and Marginal Costs REVENUE FUNCTION FOR PRICE TAKING FIRM PROFIT MAXIMIZATION WITH PRICE EQUALS MARGINAL COST REVENUE FUNCTION WITH CHANGE IN PRICE EFFECT OF A PRICE DECREASE ON PRODUCTION PLAN OF FIRM ZERO PROFIT WITH NEW PRICE PART IV OF LECTURE: AVERAGE VARIABLE COST AND THE SHUTDOWN LEVEL OF OUTPUT NEW NUMERICAL EXAMPLE MINIMUM OF AVERAGE VARIABLE COST IS THE SHUTDOWN POINT WHY? NEGATIVE PROFIT (SHADED) EQUALS THE TOTAL FIX ...

#### cost

Rollins, ECO 503
Excerpt: ... NOTE: Don't be concerned with the material in the book about break-even analysis or graphs of different cost functions Why study costs? different types of costs should play different roles in decision making part of the basis for output and pricing decisions by firms Production short run: at least one input in fixed long run: all inputs are variable Costs types of costs o accounting cost: tangible expenses o opportunity cost: includes accounting costs + implicit costs short run (definitions of different forms of cost) o fixed cost: cost of fixed inputs (don't change with output) example: rent, insurance, . o variable cost: costs that change with production average variable cost (AVC) = variable cost/output example: labor, materials, energy,. o total cost = fixed cost + variable cost average total cost (ATC) = total cost/output o marginal cost (MC) = change in total cost/change in output normally, it begins to increase once output exceeds a certain level due to diminishing margina ...

#### ch08_Solutions

Cornell, PAM 2000
Excerpt: ... always rise for a given set of input prices, implying that MC is also always positive. Therefore, the output elasticity of total cost must always be positive. 8. Because fixed cost does not change, marginal costs reflect the change in variable costs. Thus, as with the relationship between any average and marginal, if average variable cost is decreasing, marginal cost must be below average variable cost , and if average variable cost is increasing, marginal cost must lie above average variable cost . This implies marginal cost will intersect average variable cost at the minimum of average variable cost . Page 8 - 2 9. If the average variable cost curve is flat, average variable cost is neither increasing nor decreasing. Marginal cost will therefore be equal to average variable cost and the marginal cost curve will therefore also be flat. Since average fixed cost is always declining, and since average total cost is the vertical sum of average variable and average fixed costs, average total cost must also be de ...

#### Class Notes - 11-9-07

Allegheny, ECON 100
Excerpt: ... y are still making an economic profit - Exiting means that we have no fixed costs, no more capital, we're probably going to do the next best thing - In the short run, the firm will operate: Q > 0 if Price > (AVC) Average Variable Cost - In the Long run, the firm will operate: Q > 0 if Price is >= (ATC) Average TOTAL Cost (stay in industry) ...

#### sp4

Auburn, AC 610
Excerpt: ... Supplementary Problem 4: Common Cost Behavior Patterns* The top line of graphs show total costs for various types of cost functions. The second line shows related unit cost behavior. 1 2 3 4 TVC TFC TC TC u u u u AVC and MC 5 AFC 6 ATC 7 ATC AVC 8 MC ATC AVC AFC u u u u where: u TVC TFC TC AVC AFC ATC MC = = = = = = = = units produced and sold total variable costs total fixed costs total costs (i.e. TC = TVC + TFC) average variable cost s (per unit) average fixed costs (per unit) average total costs (ATC = AVC + AFC) marginal cost Points to Note: 1. Accountants often use linear total cost functions of the types shown in graphs 1, 2, and 3. With these cost functions: a. Variable costs vary in total, but are constant per unit (graphs 1 and 5). b. Fixed costs are constant in total, but vary on a per unit basis (graphs 2 and 6). Wherever output changes, AFC will change. c. Total costs vary in total (due to TVC), and also vary on a per unit basis (due to AFC) (graphs 3 and 7). This material ...

#### Economy 3.3.08

Wisconsin, ECON 101
Excerpt: ... nit cost Average fixed cot (AFC): The fixed cost per utility of output: F/Q Average Variable Cost AVC): Variable cost per unit of output: VC/Q Average Total Cost (ATC): Total cost per unit of output C/Q MC Crosses AC and AVC at its minimum AFC is always decreasing because AFC=F/Q so it decreases as Q gets larger The difference between ATC and AVC goes down as Q gets larger because this difference is equal to AFC Average variable cost is U-Shaped In the short-run Q=F(K, L) VC=w*L(Q) AVC(Q)= VC(Q)/Q=w*L(Q)/Q=w/(Q/L(Q)=w/APPL(Average physical price of labor) When APPL is at its highest AVC will be at its lowest. Average variable Cost is U-Shaped-Average Total cost must also be U-Shaped as their difference is AFC=F/Q Marginal Cost is related to the marginal product of labor. MPL=Marginal product of Labor MC=VC/Q When MPL is at its highest, MC will be at its lowest. When will the MC curve intersect the AVC curve? When MPL=APL Long run cost cuvres In the short runt here is no other way for the firm to produ ...

#### Econ_101_PS4_sp08

Cornell, ECON 101
Excerpt: ... Econ 101 Prof.Schuler Spring 2008 Problem Set 4 Due in Lecture on Monday, March 31,2008 Q.1 a. On the diagram drawn for a firm in a highly competitive industry below , carefully sketch and label an average variable cost curve (AVC) and an average total cost curve (ATC). b. Suppose that the price of labor goes up sharply because of shortages, what, if anything, will happen to the marginal cost curve below as a result of this wage increase. c. How will this wage increase affect the AVC, AFC and ATC curves? In other words, for each curve, state whether the wage change will cause the curve to shift up, shift down or not move, and explain why. d. Suppose that a technological innovation causes labor to become more productive so that the firm can produce more output with any given number of workers. Will this affect the MC curve? Explain which direction it will move and why. Q.2 2.Consider the production of donuts in the short run at Krispy Kreme. In what follows, assume that capital is fixed in the short-run a ...

#### PraExam02

SUNY Albany, AJ 4575
Excerpt: ... re total surplus, which is the sum of producer surplus and consumer surplus, is maximized in a competitive equilibrium. 2. (20 pts) A competitive rm has short-run cost function C(q) = q 3 2q 2 + 100 a. (10 pts) What are the rms variable costs, marginal costs, and average variable cost s? Answer: Variable cost is V C(q) = q 3 2q 2 . Marginal cost is M C(q) = 3q 2 4q. Average variable cost is AV C(q) = q 2 2q. b. (10 pts) What is the rms short-run supply curve? Answer: Since marginal cost is strictly increasing for q > 2/3, the rms short-run supply curve is the portion of the marginal cost curve above the average variable cost curve if that portion lies to the right of q = 2/3. We must nd where M C(q) = AV C(q). This is the positive solution to 3q 2 4q = q 2 2q, or q = 1. NOTE: This is unrealistic because the marginal cost, variable cost and average variable cost are negative at this point. The short-run supply curve is the portion of the curve 3q 2 4q such t ...