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week7-082 - Marginal Cost Average Total Cost Using Average...

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1 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 Example…
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2 Production Function Constant MP L Production Function Decreasing MP L Production Function Increasing MP L
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3 Production Function and Total Costs
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Unformatted text preview: Marginal Cost, Average Total Cost Using Average Total Cost 4 Various Measures of Cost Short Run • Fixed Cost, Variable Cost • Total Cost = Fixed + Variable • Average Costs, ATC = AVC + AFC • Marginal Cost ( MC ) Long-run Costs • Economies of Scale • Constant Returns to Scale • Diseconomies of Scale Example… 5 Short-run and Long-run Costs • Short-run • U-shaped ATC • MC cuts ATC at minimum ATC from below • Long-run ATC • An envelope of Short-run ATCs • U-shaped • Economies of Scale • Constant Returns to Scale • Diseconomies of Scale Wrap-up • Production Function – relationship between inputs and output • Marginal product of an input • Short run costs (MC, ATC, AVC, AFC) • Long run -- ATC...
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week7-082 - Marginal Cost Average Total Cost Using Average...

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