Chapter 8Cost

Chapter 8Cost - Chapter 8 Cost of Production Explicit edit...

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Click to edit Master subtitle style 3/25/10 Chapter 8 Cost of Production Explicit and Implicit Costs Short Run—Long Run Marginal Product Average Product
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3/25/10 Cost and Profit TC = rK +wL Ø Where: Ø TC is Total Cost Ø r is the interest rate (cost of capital) Ø K is Capital Ø w is the wage rate (cost of labor) Ø L is labor Ø Total cost is the price of capital *
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3/25/10 Production Function and Total Cost Mathematical/ numerical expression of the relationship between maximum output and available inputs. q Q = f(L,K) q Consider 2 different combinations of labor and capital that will produce the same number of Green Sweatshirts.
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3/25/10 Production Function and Total Cost Ø The price of Capital is $60 per hour Ø r = $60 Ø The price of Labor is $6 per hour Ø w = $6 Method Units of Capital Units of Labor A 2 20 B 4 15
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3/25/10 Production Function and Total Cost Ø TC = $60 * K + $6 * L Ø Method A Ø $60 * 2 + $ 6 * 20: TC = $240 Ø (120 + 120 = 240) Ø Method B Method Units of Capital Units of Labor A 2 20 B 4 15
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Chapter 8Cost - Chapter 8 Cost of Production Explicit edit...

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