session5thefirmscosts

session5thefirmscosts - SESSION 5 SESSION 5 5 The Firms...

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Unformatted text preview: SESSION 5 SESSION 5 5 The Firms Costs SESSION 5: The Firms Costs SESSION 5: The Firms Costs The Role of Production Costs Our objective in the coming lectures is to study profit-maximizing behavior by firms This requires that we understand two aspects of a firms operations The demand side: determined by the nature of competition The supply side: determined by the firms production costs In this section we consider production costs SESSION 5: The Firms Costs SESSION 5: The Firms Costs The Importance of Production Costs Suppose that a firm has chosen a particular level of output Then to maximize profit it must produce this output level at least cost So firms (and we) need to understand the relationship between output and cost In doing so we need to distinguish between the short-run and the long-run SESSION 5: The Firms Costs SESSION 5: The Firms Costs Short-Run versus Long-Run In the short-run some inputs are fixed and invariant Factory space; specialized production facilities; specialized, high-skilled labor In the long-run all inputs can be varied Short-run decision How much output? Long-run decision What capacity to install SESSION 5: The Firms Costs SESSION 5: The Firms Costs Short-Run Costs In the short-run variable inputs (labor, materials etc.) must be combined with fixed inputs (capital equipment, factory space) A typical relationship between output and production costs looks like this....
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This note was uploaded on 10/19/2009 for the course ECON 5 taught by Professor Norman during the Fall '08 term at Tufts.

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session5thefirmscosts - SESSION 5 SESSION 5 5 The Firms...

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