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3-11-09

# 3-11-09 - • FC will be the part of the TC function that...

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Microeconomics – Class Notes – 3/11/09

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T-Method Use the t-method to determine the “returns to scale”

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Logarithmic – section 6.2 Elasticity section DON’T HAVE TO KNOW THIS FOR QUIZ
END OF CHAPTER #6 MATERIAL

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CHAPTER #7

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IN-CLASS WORKSHEET Q TC AC AVC MC 0 450 - - 100 5 875 175 85 75 10 1250 125 80 80 (73.75) 15 1725 115 85 115 20 2450 1225 100 180 AC and MC are the same when the minimum of the AC curve is reached, thus it seems as though an output of 15 units is the minimum (AC = MC at the minimum of Q=15) o When AC=MC Average Cost minimum AVC = MC (the minimum of the average variable cost ) You can tell the difference between VC and FC by: VC will be the part of the TC function that varies (like Q^2)

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Unformatted text preview: • FC will be the part of the TC function that does NOT vary (a constant, like 9) • The marginal cost is always above the AVC, so the AVC is always rising So, to determine what the shape of the AC looks like (AC = Q + (9/Q)) • Set AC=MC • [(Q^2 + 9) / Q ] = (2*Q)*Q o Q^2 + 9 = 2Q^2 o 9 = Q^2 o Q = 3 AC will always be above AVC in this case FOR QUIZ OR EXAM: • Tell him what’s wrong with this picture (2 things) ATC (AC) is below the AVC (negative FC for some range and positive FC for another range) The MC MUST intersect the AC at the minimum. READ CHAPTER #7...
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