Econ 1, Lec 13

# Econ 1, Lec 13 - LECTURE 13 Econ 1 Winter 2008 RATIKA NARAG...

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1 Econ 1, Winter 2008 RATIKA NARAG, Ph.D. LECTURE 13 Admin: Office hours today: 9:15 -11:15 am No office hours on 02/28 LECTURE 13 Total Product Curve and MP – TP curve shows the PF graphically; upward sloping as more output is produced when more inputs are hired – TP curve becomes flatter as the MP of labor declines as more and more workers are hired – Slope of the TP curve: MP LECTURE 13 Fixed Input: Any resource for which the quantity cannot change during the period of time under consideration Variable Input: Any resource for which the quantity can change during the period of time under consideration LECTURE 13 Production Costs in the SR – Average fixed costs: – AFC declines as Q increases – Average variable cost: – Average total cost: Q TFC Q TVC Q TC LECTURE 13 Example: AFC 1,000 4 ? AFC 1,000 5 1,000 3 1,000 2 1,000 1 1,000 0 TFC Q

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2 LECTURE 13 AFC = TFC/Q – TFC do not change ( remember, they are fixed!) 250 1,000 4 200 1,000 5 333.333 1,000 3 500 1,000 2 1,000 1,000 1 - 1,000 0 AFC TFC Q LECTURE 13 AFC = TFC/Q – As the firm makes more (Q goes up), AFC goes down LECTURE 13 Example: TVC 24 3 18 2 10 1 0 0 TVC Q LECTURE 13 Total Variable Costs – As the firm makes more (Q goes up), variable cost goes up LECTURE 13 Another Example: 20 20 20 20 20 20 TFC 145 125 4 170 85 50 30 0 TVC 190 5 105 3 70 2 50 1 20 0 TC = TFC + TVC Q LECTURE 13 Adding the same amount of TFC to every level of TVC yields TC Remember: TC = TFC + TVC For this reason, the TC curve has the same shape as the TVC curve; it is simply higher by an amount equal to TFC
3 LECTURE 13 The TC curve will have the same shape as TVC, but will shift up by the amount of the fixed costs LECTURE 13 TVC cause the TC curve to be upward sloping; the greater the output the higher the costs The exact shape depends on the nature of the variable costs and how they change with output LECTURE 13

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