Econ101October19 - Econ 101 I Long run vs Short Run a Long...

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Econ 101 October 19, 2007 I. 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 II. 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 costs = 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)
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Unformatted text preview: 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. Therefore, P = Marginal Revenue = MB III. Terms a. Shutdowns i. If price goes below Shutdown point, it is called Temporary Shutdown b. Returns to Scale (See Lecture notes from October 17) c. External Economies and diseconomies of scale i. Long run supply curve is perfectly elastic ii. Exhibits no economies of diseconomies of scale iii. Growth of industry doesn’t foster technology improvements and doesn’t change the price of inputs 1. External E and D effect Long run INDUSTRY supply curves 2. Technology and factor prices are affected when firm expands or contracts?...
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