Lecture17

# Lecture17 - Announcements Second exam is NEXT Wednesday...

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nnouncements Announcements cond exam is NEXT Wednesday Second exam is NEXT Wednesday Monday will be review Exam will be through Chapter 8. HW6 due tonight! 1of31

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Review Fixed costs=costs that do not change with a change in output (Q) Variable costs=costs that do change with a ange in output. change in output. Marginal cost=the change in total costs rought about by a 1 unit increase in output brought about by a 1 unit increase in output. Before break we talked briefly about the relationship between marginal product and marginal cost. 2of31
THE PRODUCTION PROCESS Total Average and Marginal Product ) ( TP slope TP MP L = Δ = L Δ 3of33

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COSTS IN THE SHORT RUN Graphing Total Variable Costs and Marginal Costs Total Variable Cost and Marginal Cost for a ypical Firm Typical Firm VC VC MC TVC TVC q TVC TVC = Δ = Δ = Δ = 1 Δ of slope 4of31
COSTS IN THE SHORT RUN Short-Run Costs of a Hypothetical Firm (3) (4) (6) (7) (8) (1) q (2) TVC MC ( Δ TVC ) AVC ( TVC/q ) (5) TFC TC ( TVC + TFC ) AFC ( TFC / q ) ATC (TC/q or AFC + AVC) 0\$ 0 \$ \$ \$1,000 \$ 1,000 \$ \$ 11 0 1 0 1 0 1 ,000 1,010 1,000 1,010 , , , , 2 18 8 9 1,000 1,018 500 509 3 24 6 8 1,000 1,024 333 341 4 32 8 8 1,000 1,032 250 258 5 42 10 8.4 1,000 1,042 200 208.4 −− 500 8,000 20 16 1,000 9,000 2 18 5of31 Marginal cost is the cost of one additional unit . Average variable cost is the total variable cost divided by the total number of units produced.

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COSTS IN THE SHORT RUN Graphing Average Variable Costs and Marginal Costs 6of31 Marginal cost intersects average variable cost at the lowest, or minimum, point of AVC.
The relationship between marginal and average Homework Grade (Marginal) Total Points Average Grade 1 9 09 0 2 80 170 85 00 70 0 3 100 270 90 4 70 340 85 5 85 425 85 6 55 480 80 When the marginal score is below the average, it pulls the average down. When the marginal score is above the average, it pulls the average up and when the two are equal, 7of31 g, p g p q , the average does not change. The same relationship holds for marginal cost and variable cost.

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COSTS IN THE SHORT RUN To get TOTAL COSTS , we just add fixed costs and variable costs 8of31
COSTS IN THE SHORT RUN Average Total Cost ( ATC ) average total cost ( ATC or AC ) Total cost divided by the number of units of output. TC TC q ATC AVC AFC ATC + = 9of31

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Combining all the cost curves, we get a picture that looks like this: 10 of 31
Combining all the cost curves, we get a picture that looks like this: Cost Curves \$ ATC=AC MC AVC AFC 11 of 31 Q

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COSTS IN THE SHORT RUN Average Total Cost = Average Variable Cost + Average Fixed Cost 12 of 31
COSTS IN THE SHORT RUN The Relationship Between Average Total Cost and Marginal Cost The relationship between average total cost and arginal cost is exactly the same as the marginal cost is exactly the same as the relationship between average variable cost and marginal cost.

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## This note was uploaded on 03/18/2008 for the course ECON 2005 taught by Professor Zirkle during the Spring '07 term at Virginia Tech.

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Lecture17 - Announcements Second exam is NEXT Wednesday...

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