Econ 101 Winter 2010 Lecture 23

Econ 101 Winter 2010 Lecture 23 - Economics 101...

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Click to edit Master subtitle style Lecture 1 Economics 101 Microeconomics University of Michigan Winter 2010 Lecture 23
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Lecture 1 22 Available on Ctools this afternoon Last week of discussion sections No quiz in discussion this week Reading Problem Set 13
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Lecture 1 Production Costs Rather than focus on opportunity costs, our theory of the firm concentrates on explicit production costs n Dollar costs of the factors of production We know that firms will choose inputs in order to minimize the costs of production n How much does it cost to produce a given quantity of output? n Characterized by a cost function C(q, W, R…) = lowest cost associated with output level q, given factor prices W, R etc.
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Lecture 1 Flexibility of the Firm Over a given time frame, factors of production may be categorized as n Variable factors n i.e. usage of these inputs will vary with the output level selected by the firm n Reducing output to zero implied that none of these factors are employed n Fixed factors n i.e. usage of these inputs does not vary with the output level selected by the firm n Reducing output to zero does not change the fact that the firm must pay for these factors
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Example: Electricity generation Inputs: n Labor n Coal (i.e. raw materials) n Generators (i.e. capital) Demand for electricity changes seasonally n Ideally, output and inputs will also vary seasonally Is the firm likely to be fully flexible? n Coal and labor are always variable inputs n Capital (i.e. Generators) is a fixed input in the “short run” n Generators cannot appear immediately, nor do they disappear
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Econ 101 Winter 2010 Lecture 23 - Economics 101...

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