Econ101October17

Econ101October17 - Econ 101 I II III IV Mechanism Design...

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Econ 101 October 17, 2007 I. Mechanism Design Theory a. Models how actual resource allocation institutions work in the presence of private incentives, incomplete information, and government interventions b. Converge to competitive equilibrium and achieves full Pareto Efficiency c. Markets reveal competitive price d. Has been applied to the design of auctions for wireless communication bandwidth, lots of other markets, ext. II. Shut down, sunk costs, and avoided fixed costs a. In the real world, the shut down rule is more subtle then “shut down below shut down price” b. When firm considers shutting down in short run, then it must take another look at fixed costs i. Fixed costs = sunk costs + avoidable fixed costs ii. Avoidable fixed costs can be considered managerial time iii. Operate only if revenue covers the variable costs and avoidable fixed costs iv. Put avoidable fixed costs in variable costs and only consider non avoidable costs in fixed costs III. Long run costs curves a. Both labor and capital will vary
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Econ101October17 - Econ 101 I II III IV Mechanism Design...

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