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Unformatted text preview: Chapter 5: The Competitive Firm Relations between marginal and average functions: 1. Marginal above avg. avg. is rising 2. Marginal below avg. avg. is falling 3. Marginal = avg. avg. is constant Short Run (SR) • Time where firm must incur TFC regardless of level of output • Rent, loans, taxes Total Fixed Cost (TFC) • Paid even if production is 0 • Rent, loans, taxes • TC = TFC+TVC Total Variable Cost (TVC) • Costs that rise as output rises • Materials, labor, transportation • Greater the firms production greater the costs • Produce nothing costs are 0 Total Cost (TC) • Entire opportunity cost to produce a given output Point of Diminishing Returns • Where slope of TC curve reaches a minimum Formulas • ATC = TC/Q • AVC = TVC/Q • AFC = TFC/Q • ** ATC = AVC + AFC Marginal Cost (MC) • Cost of producing one more unit • ∆TC/∆Q • ** MC passes through min of both avg. curves Average Revenue (AR) • TR/Q or AR = P Marginal Revenue (MR) • Change in TR for selling an additional output •...
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- Winter '08
- Economics, Economics of production, The Competitive Firm