ARE 100A5 - a. i. ii. Another way to look at this: 1. 2....

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a. i. ii. Another way to look at this: 1. 2. FINAL 3. review a. 3 LR ATC concepts i. economies of scale 1. scale: size of operation a. having a larger shop is sometimes more efficient than a smaller shop ii. learning curve 1. q vs cq ( cumulative q, a running total) 2. static vs dynamic iii. economies of scope b. Economies of scale i. Bc LR, all inputs are variable.
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ii. c. Learning Curve i. Reducing ATC over time. Aka Dynamic learning. ii. 2 graphs to consider iii. d. Economies of Scope
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i. Can you reduce the cost of a given product by also producing another product. AKA can simultaneous production of several q reduce ATC for all q. 1. ex. ford has exporers, they had their sedan chasis, we can use the same chasis and make an SUV, this is economies of scope bc there is a shared chasis, the problem is they roll over. ii. Case 1, economies of scope realized. 1. ATC (q1, q2) a. Producing 2 products simultaneously 2. ATC (q1) + ATC (q2) a. Producing 2 products individually 3. for economies of scope, ATC (q1, q2) < ATC (q1) + ATC (q2) 4. also, if ATC (q1, q2) = ATC (q1) + ATC (q2) , no gain 5. ATC (q1, q2) >ATC (q1) + ATC (q2) (diseconomies of scope) 4. Chapter 8 a. But let’s review/look ahead first b. Salmon handout. 5. Ch 8 has 2 important topics a. Profit maximization by firms b. How market price is set. c. Profit maximization i. Firm’s supply curve. 1. short run vs long run 2. firms vs industry. 6. NOTE: handout is all SR a. Howe we think firms make profit maximizing decisions. We assume perfect competition. The firm has no ability to influence price. This is not the case in many many markets: gas price, Microsoft price. This is the basis for the perfect competition model b. Define TR: total revenue = Pq c. Then you have TC = TVC= TFC i. Assume firm’s objective is to maximize profits. ii. Max profit q = TR = TC, iii. So pi = PQ = TC iv. So take the derivative of max pi v. Dpi/dq = P – MC = o 7. NOTE: what happens is that firm set’s it’s optimal q by using, define a firm’s SR supply curve is it’s MC > min AVC 8. NOTE: blank… 9. Central point: firm treats market price as the dmeand curve.
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10. Today: we want to show that a fir’sm SR supply curve is
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This note was uploaded on 04/11/2009 for the course ARE 100A taught by Professor Constantine during the Spring '08 term at UC Davis.

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ARE 100A5 - a. i. ii. Another way to look at this: 1. 2....

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