12-Costs in SR

12-Costs in SR - The Cost of Production: Costs in the Short...

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1 The Cost of Production: Costs in the Short Run Reading: Chapter 7
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2 Decision of how to produce 1. Choose all technologically efficient production processes 2. From them, pick the one that is also economically efficient (minimizes cost) Relationship between output and costs determines the nature of an industry: how many firms are in the industry how high price is relative to cost
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3 How to measure costs? Accounting costs : only explicit costs (out of pocket, actual expenses) Economic costs: explicit costs + opportunity costs ( value of the best alternative use of the resource) Sunk cost: e xpenditure that has been made and cannot be recovered Should not influence firm’s future economic decisions
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4 Measuring Costs in the Short Run Fixed cost ( FC ): production expense that does not vary with output Variable cost ( VC ): production expense that changes with quantity of output produced Total cost (T C ): TC = VC + FC
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5 Measuring Costs in the Short Run
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12-Costs in SR - The Cost of Production: Costs in the Short...

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