EC201_L06 - Cost and Production Our discussion: 1. 2. 3. 4....

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Econ 201 - Principles of Microeconomics 1 Cost and Production Our discussion: 1. Individuals’ “advantages” 2. Society’s production choice 3. Marginal cost and supply 4. Market efficiency
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Econ 201 - Principles of Microeconomics 2 1. Individuals’ advantages The three questions of production:  What should we (our economy) produce?  How should we produce?  For whom should we produce? What should be produced? Let’s say that Tex has enough capital, labor and land to produce the following combinations of guns and butter. 3 0 D 2 1 C 1 2 B 0 3 A Butter Guns To produce more guns Tex must produce less butter. The Production Possibilities Frontier shows the combination of various goods that one can produce given all available resources and technology. PPF Tex 3 2 1 0 1 2 3 A B C D Guns Butter
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Econ 201 - Principles of Microeconomics 3 What combination of guns and butter might Tex produce? 3 2 1 0 1 2 3 Let’s say production takes place at point C = {1,2}. Guns Butter Inefficient points of production Inaccessible A B C D Assume that there is a second producer of guns and butter, Cal, with the following PPF. 0 Butter Guns 4 8 A E B C D Again, after ruling out A and E, we’ll assume production takes place at C. PPF
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This note was uploaded on 04/27/2008 for the course ECON 201 taught by Professor Wadell during the Spring '08 term at University of Oregon.

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EC201_L06 - Cost and Production Our discussion: 1. 2. 3. 4....

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