eco final review - CHAPTER 10 Production and Costs (ch 10)...

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CHAPTER 10 Production and Costs (ch 10) - Long-run costs: - LRATC curve and plant size - Regions: economies of scale, constant returns to scale, diseconomies of scale - factors - mergers and scale economies Look at notes (graph of plant sizes and LR) -Long Run Cosrs: all inputs variable -LR ATC: minimum cost per unit of any q, given time to change all inputs, including plant size -Regions: 1) Economies of scale (0-q1) LR ATC decreases as q increases If all inputs increase by a given %, output of motorcycles will increase by a larger % 2) Constant returns to scale (q1 –q2) LR ATC constant as q increases If all inputs increase by a given %, output increases by same % 3) Diseconomies of scale (q2 - ) LR ATC rises as q rises If all inputs increase by a given %, output will increase by a smaller % Sources of scale economies: -automation -specialization -start up costs -volume discounts -lower transportation costs per unit -physical relationships Mergers: -sprint/Nextel -look at notes -mergers use capital more efficiently Economic costs and profit: Acc costs – explicit costs (out of pocket) and depreciation value Eco costs – implicit costs (opp costs) and explicit costs and depreciation and interest rates Acc profit – revenue – acc costs Eco profit – revenue – eco costs -look at notes for example
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Chapter 11 Perfect Competition (ch 11) - Characteristics - Firms = Demand (perfectly elastic) - Price and Marginal Revenue (MR) - Profit-Maximizing Output Condition: P=MC - Firm = s Supply Curve: MC curve above min AVC - Shut-down point - Deriving the Industry Supply (or MC) curve - Profit - π=TR-TC, or π=(P-ATC)Q - Break-even point - Short-run v. Long-run - Demand increases - Demand decreases - Cost changes - Long-run Supply curve - Increasing/Constant/Decreasing Cost industries Perfect competition: Characteristics: -many buyers and sellers -homogeneous product -easy entry and exit -no transactions costs -perfect information =firms are price takers no control over price, must accept market price =long run economic profit is ZERO Near examples: -corn, wheat -financial stocks/bonds -pearls -shrimp -demand (perfectly elastic) = look at notes -firms MR = marginal revenue = change in total revenue/change in q -MR = market price = demand (for firm) -maximizing output = look at notes -profits increase if I produce units where MR > MC -optimal Q = MR = MC OR P = MC (for last unit) -alternative optimal rule (if discrete units): increase q as long as p > mc -firms supply curve is equal to the MC curve (above AVC) -firms optimal Q = 0 if P < AVC
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Shut down rule: -when should a firm shut down and produce zero in the short run? When TR<VC OR P < AVC
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This test prep was uploaded on 03/19/2008 for the course W 304 taught by Professor Showalter during the Summer '07 term at University of Texas at Austin.

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eco final review - CHAPTER 10 Production and Costs (ch 10)...

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