Lecture11--COSTANDPRODUCTIVITY

Lecture11--COSTANDPRODUCTIVITY - Cost and Productivity How...

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Cost and Productivity How cost of production is measured and how it is related to productivity of inputs
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Economic cost is the monetary value of all inputs used including implicit costs which measure the value of non- purchased inputs
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In the short run costs are divided into two categories: Fixed cost (FC): The cost of fixed inputs. Fixed costs do not vary with output and are sometimes called overhead costs Variable costs (VC): The cost of variable input. Variable cost depends on the number of units of output produced
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Total cost is the sum of fixed cost and variable cost: TC = FC + VC
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A Cost Function: Gives the minimum possible cost of producing a given level of output A Point of Diminishing Returns VC= wL Q max 0 B Points above this line are not included in the cost function If labor is the only variable input, variable cost is wL, where w is the wage and L is the quantity of labor Output
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Derivation of the variable cost curve from the total product curve Point of diminishing Returns B A L Q 0 TP L Point of Maximum Q Step 1: Multiply the amount of labor, L, by the wage.
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This note was uploaded on 10/13/2008 for the course EC 205 taught by Professor Hymen during the Fall '08 term at N.C. State.

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Lecture11--COSTANDPRODUCTIVITY - Cost and Productivity How...

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