Lec12 - Productivity Total Product 160 120 80 40 0 0 20 2 4...

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1 Factor Total Product Average Product Marginal Product 0 0 - 2 12 6.0 4 44 11.0 6 80 13.3 8 100 12.5 10 112 11.2 12 122 10.2 14 131 9.4 16 139 8.7 18 146 8.1 20 152 7.6 6.0 16.0 18.0 10.0 6.0 5.0 4.5 4.0 3.5 3.0 0 5 10 15 20 0 2 4 6 8 10 12 14 16 18 20 Factor Product MP AP Q/x D Q/ D x 0 40 80 120 160 0 2 4 6 8 Total Product TP x Q Productivity u law of diminishing returns u additional output from successive increases of one input will eventually diminish (other inputs held constant) Firm Behavior u profit maximization given cost data, production data, market information u profits = total revenue (TR ) - total costs (TC) u marginal revenue (MR) u additional revenue from sale of additional unit of output u MR = D TR/ D Q u marginal cost (MC) u additional cost of producing additional unit of output u MC = D TC/ D Q u D Profits/ D Q = D D Q - D D Q MR > MC Produce more MR < MC Produce less MR = MC Profits maximized = MR - MC u Competitive industry u market price determined where Q d =Q s u firm price taker u firm small relative to size of market u Revenue u can produce and sell all that it wants at market price MR = D D Q = D (pQ)/ D Q = p D Q/ D Competitive Firm = D (pQ)/ D Q = p D Q/ D Q = p
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2 u Marginal Cost (MC) - D TC/ D Q , TC = VC + FC = MC VC ; u Total Cost (TC) u Fixed Cost (FC) - payment to fixed inputs u Variable Cost (VC) - payment to variable inputs MR = D TR/ D Q = D (pQ)/ D Q = p D Q/ D Competitive Firm = D (pQ)/ D Q = p D Q/ D Q = p Quantity Total Cost Marginal Cost 0 2 - 1 3 1 2 5 2 3 9 4 4 14 5 5 20 6 u Revenue u
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This note was uploaded on 10/10/2009 for the course ECON 101 taught by Professor Gerson during the Winter '08 term at University of Michigan.

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Lec12 - Productivity Total Product 160 120 80 40 0 0 20 2 4...

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