E303lect32F09

E303lect32F09 - November 11, 2009 Reading: Ch. 5, pp....

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November 11, 2009 Reading: Ch. 5, pp. 177-185 Problem Set #11. Posted on Blackboard. Due Monday Test #2 WEDNESDAY Lecture 32 REVIEW___________________________________________________: c. Algebraic Forms of the Cost Function. 1. Solving Algebraic specifications 2. Production and pricing decision. A second example Suppose TC = 800 + 40Q + 2Q 2 Identify the following ATC = 800/Q + 40 + 2Q AVC = 40 + 2Q AFC = 800/Q MC = 40 + 4Q ATC min ATC = MC 800/Q + 40 + 2Q = 40 + 4Q 800/Q = 2Q Q 2 = 400 Q = 20 Costs at that level of output are MC = 40 + 4(20) 120 AVC min AVC = MC 40 + 2Q = 40 + 4Q Q=0 If the price is $140, what is the optimal level of output ? MC = P 40 + 4Q = 140 4Q = 100 Q = 25
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What are profits or losses? π = 140(25) - [800 + 40(25) + 2(25) 2 ] = 3500 - [800+ 1000+ 1250] = 3500 - 3050 = 450 d. Sunk vs. variable costs. PREVIEW ____________________________________________________ 3. Long Run Costs a. Long run average costs b. Economies of Scale, Diseconomies of Scale and Survivability c. Measuring returns to scale 4. Multiple Output Cost Functions Lecture__________________________________________________________ 3. Long-Run Costs . In the Long run, all costs are variable. As I indicated at the outset of this chapter, the long run may be viewed as the planning horizon, since the project for the firm is to pick the optimal plant size. Information about the Long-Run Average Cost curve is very useful for determining the structure of an industry.
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This note was uploaded on 04/12/2010 for the course ECON 303 taught by Professor Shrestha during the Fall '08 term at VCU.

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E303lect32F09 - November 11, 2009 Reading: Ch. 5, pp....

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