Class03_05

Class03_05 - Class Notes(cover part of Chapter 9 in the...

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05/03/2008 Class Notes (cover part of Chapter 9 in the textbook) Class Outline Short-Run Cost 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 Example: John’s Pizza place L # of Pizzas (per night) FC VC TC 0 0 10 0 10 1 25 10 5 15 2 58 10 10 20 3 75 10 15 25 4 85 10 20 30 5 90 10 25 35 1

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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.
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This note was uploaded on 04/29/2008 for the course ECON 251 taught by Professor Blanchard during the Spring '08 term at Purdue.

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Class03_05 - Class Notes(cover part of Chapter 9 in the...

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