Notes 10.03.24 - Chapter 10 Costs Chapter Outline Costs In...

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Chapter 10 Costs
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Chapter Outline Costs In The Short Run Allocating Production Between Two Processes The Relationship Among MP, AP, MC, and AVC Costs In The Long Run The Relationship Between Long-run And Short- run Cost Curves
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Costs In The Short Run Fixed cost (FC): cost that does not vary with the level of output in the short run (the cost of all fixed factors of production). Variable cost (VC): cost that varies with the level of output in the short run (the cost of all variable factors of production). Total cost (TC): all costs of production: the sum of variable cost and fixed cost.
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Example What is the cost of producing Q= F(K 0 , L) units of output if the following information is given: w = unit cost of labor (e.g., hourly wage rate) r = unit cost of capital (e.g., hourly rental rate)
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Example Suppose the production function is given by Q=3KL where price of capital is $2/machine-hr and the price of labor is $24/person-hr, and capital is fixed at 4/machine- hr. Graph the FC, VC, and TC curves. r=$2 W=$24 K=4 Fc=2*4=8 Vc=24*Labor(Q/12)=2Q Q=3KL Q=12L L=Q/12 TC=fc+vc=8+2Q Fc graphically is a straight horizontal line Tc slope=VC slope just shifted upwards
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Costs In The Short Run Average fixed cost (AFC): fixed cost divided by the quantity of output. AFC=FC/Q
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This note was uploaded on 04/29/2010 for the course PSYCH 85 211 taught by Professor Theissen during the Spring '10 term at Carnegie Mellon.

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Notes 10.03.24 - Chapter 10 Costs Chapter Outline Costs In...

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