08GottCostsProdShow

08GottCostsProdShow - Ch. 8: Costs Ch: 9 Revenues Profits...

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1 Costs of Production Costs Average cost and marginal cost Implicit cost and explicit cost Law of diminishing returns Economies of scale Ch. 8: Costs Ch: 9 Revenues Profits
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2 Fixed cost (FC) Does not change with the quantity of goods produced. (also called “ sunk ” or “historical” costs. Variable cost (VC) Changes with the quantity of goods produced. Total costs (TC) = TFC + TVC
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3 EXHIBIT 1A TOTAL FIXED COST FOR THE MAXIBOAT
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4 EXHIBIT 1B TOTAL FIXED COST FOR THE MAXIBOAT
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5 The Law of Diminishing Returns Marginal product (MP) Change in total product caused by a one-unit change in an economic resource (e.g., labor). Law of Diminishing Returns In short run , marginal product will first increase and then begin to decrease.
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Law of Diminishing Returns Laborers Total Product Marginal Product Labor Cost Per Additional Fish 0 0 1 4 4 $1.25 2 10 6 0.83 3 25 15 0.33 4 35 10 0.50 5 40 5 1.00 6 42 2 2.50 Assume: Short run . What does this mean? Each unit of labor costs $5.
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This note was uploaded on 07/14/2010 for the course ECON 1 taught by Professor Bergstrom during the Fall '07 term at UCSB.

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08GottCostsProdShow - Ch. 8: Costs Ch: 9 Revenues Profits...

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