week7-notes - Production and Costs Goal-Build a model to...

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Goal--Build a model to predict the price and quantity decisions of firms, this involves… Production theory – investigating the relationship between inputs and output Cost curves – the relationship between cost and quantity of output produced Production and Costs Background -- two important basics for understanding costs Costs – want to measure the full Opportunity Cost of all resources used. Explicit costs = out-of-pocket costs Implicit costs = opportunity costs of the resources supplied by the firm’s owners Short Run – at least one input is fixed Long Run – the firm can vary all inputs and technology
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Example… Production Function Constant MP L
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Production Function Decreasing MP L Production Function Increasing MP L
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1. Explicit costs are: a. the payments made to only labor. b. the payments made by the firm to others. c. the same as accounting profit. d. the opportunity cost of resources owned by the firm
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week7-notes - Production and Costs Goal-Build a model to...

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