Chapter07_H - 6E:001 Principles of Economics Spring 2008 Chapter 7 Production and Costs What's ahead Short VS Long Run Production Measuring Output

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1 6E:001 Principles of Economics Spring, 2008 Chapter 7 – Production and Costs Ch. 7 2 What’s ahead { Short VS Long Run { Production z Measuring Output -- Marginality z Optimal Short Run Decisions z Optimal Long Run Decisions { Costs z Measuring Costs { Economies of Scale Ch. 7 3 Time Frame { Short Run z Only one input can be varied z Other inputs are fixed z Firm faces fixed and variable costs { Long Run z All inputs are variable z No costs are fixed, all are variable
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2 Ch. 7 4 Production { Relation between Level of Inputs and maximum possible output { In short run, only one input can be changed { As input level increases, output level grows { We’ll call the output “Total Physical Product” Ch. 7 5 Production – Table and Graph Textbook Table 1, Figure 2 of Ch 7 Ch. 7 6 Alternative ways to measure output { Total Physical Product (TPP) { Average Physical Product (APP) z APP = TPP / units of input { Marginal Physical Product (MPP) z MPP = Change in TPP as input changes 1 unit z Most Production Processes exhibit Diminishing Marginal Product { Marginal Revenue Product (MRP) z MRP = MPP x Price of output
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3 Ch. 7 7 Output Measures Table 2 from Chapter 7 of the Textbook (MRP assumes output price is $15,000 in this illustration.) Ch. 7 8 Law of Diminishing Marginal Product { Most production processes exhibit “Diminishing Marginal Product” over at least a
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This note was uploaded on 03/28/2008 for the course ECON 06E:001:AA taught by Professor Nelson during the Spring '08 term at University of Iowa.

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Chapter07_H - 6E:001 Principles of Economics Spring 2008 Chapter 7 Production and Costs What's ahead Short VS Long Run Production Measuring Output

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