chapter6 - 1 Chapter 6 Chapter 6 Supply Supply Firm...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 1 Chapter 6 Chapter 6 Supply Supply Firm Behavior Firm Behavior Assumption: firms seek to maximize profits. 2 Two Sides of Profit Two Sides of Profit Maximization Maximization 1. Costs: How much it costs a firm to produce something. Relates to the production technology for the firm. 2. Revenues: How much a firm can get from selling something. Relates to the market structure. 1. Standardized products 2. Many buyers and sellers 3. Buyers and sellers well-informed 4. Mobile productive resources Perfectly Competitive Firms Perfectly Competitive Firms 3 Production Production A factor of production : an input used in the production of a good or service Land Labor Capital: Manufactured goods used to produce another good. Entrepreneurship: the work of organizing production and seeing it through Production Production The short run : Period of time sufficiently short that at least some of the firms factors of production are fixed. Fixed factors of production Variable factors of production The long run : Period of time sufficiently long that all of the firms factors of production are variable. 4 Production in the Short Run Production in the Short Run Total product (TP): total quantity produced at a given level of inputs. Marginal product (MP): increase in total product given a one-unit increase in a given input. All other inputs remain the same. Marginal product of labor Average product (AP): total product divided by the quantity of the input used. Example Example Labor (Workers) Total Product (Bottles/day) 1 80 2 200 3 260 4 300 5 330 6 350 7 362 Marginal Product Average Product 5 Some Patterns Some Patterns (Short run) (Short run) Marginal Product (MP) : Initially increases: specialization Eventually decreases: diminishing marginal returns Law of diminishing marginal returns : when some factors of production are fixed, the marginal product of the variable input eventually declines. Average Product (AP) : Initially increases and eventually decreases increases when MP>AP and decreases when MP<AP. Game Game New Students Age Average Age in Class Average Up or Down?...
View Full Document

This note was uploaded on 02/07/2010 for the course BILD 661039 taught by Professor Mel during the Fall '09 term at UCSB.

Page1 / 20

chapter6 - 1 Chapter 6 Chapter 6 Supply Supply Firm...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online