ARE 100A4

# ARE 100A4 - a 2 3 TC = TVC TFC aka TC= VC FC a TC=wL rK b...

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a.

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2. 3. TC = TVC+TFC aka TC= VC+FC a. TC=wL+rK b. Q= f(L,K) i. AVC=TVC/Q ii. AFC= TFC/Q iii. ATC= AVC+AFC c. MC= dTVC/dQ = dTC/dQ d are deltas i. TC= TVC+TFC ii. DTFC/dQ= 0 d. Ex. rent an apartment for \$500/month e. Rent a hotel for \$100/night. 4. Consider: AFC = TFC/Q a. ATC – AVC+AFC i. As Q increase AFC goes to – ii. As Q increase AVC goes to ATC
iii. b. 5. Now some special cases

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a. 6. Review: we just completes SR production and costs w/general 3 stage
a. 7. Next, Long run costs and long run production a. We introduce and isocost is the same cost at any point on the line, marginal benefit of MRT vs marginal cost on the market

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b. c. TC = wL+rK d. Draw the line by isolating K i. rK= tc- wL ii. K = TC/r – W/r *L 1. – w/r *L is the slope or the relative labor price iii. Examine w/r = \$/unit of labor / \$/unit capital = units K /units L 1. if the firm purchases 1 unit of labor, then it must forego some units of capital. iv. e. Isocost example i. Suppose W = 10, r= 2
ii. TC = 10L + 2K iii. K = TC/2 – 5L iv. f. in the market, w/r = Pl/PK g. MRTSlk = w/r i. h. recall that MRTSlk = MPL/MPK this is a definition i. MRTSlk = w/r only at equilibri um, not a definition ii. Restate: MPL/MPK = w/r WPL/w = MPK/r 1. MPL/w how productive last unit of labor you hired is 2. MPK/r is how productive the last unit of capital you bought is Per dollar a. When these two are equal, product is maximized. b.

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ARE 100A4 - a 2 3 TC = TVC TFC aka TC= VC FC a TC=wL rK b...

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