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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This note was uploaded on 04/29/2008 for the course ECON 0100 taught by Professor Kenkel during the Spring '08 term at Pittsburgh.

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

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