Intro to Microeconomics_Agnello_Date_042710

Intro to Microeconomics_Agnello_Date_042710 - automatically...

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Important implicit costs - Value of owner’s times - Value of owners capital Economists profit = TR - all opportunity costs ( explicit and implicit) Accountants profit = TR - explicit cost only Accountants profit > or equal to Economist’s profit - Economists profit better for understanding and making supply decisions (P to change, Q to offer) - Because arbitrary choices (often personal) will not affect economist’s profit and thus supply decisions - Examples: - Owner decides o work in firm instead of hiring a manager - Owner decide to use own money to get firm started (ie capitalize) instead of borrowing from the bank - Makes no difference in economic decisions - What is the normal value of economic profit? - Costs in more detail and how they vary sales or production (Q) - Need to know supply - First start with production and focus on how to increase production (Q) - Q = f(inputs) = f(labor, capital, land, materials) - Assume short run where capital and land are fixed. Also, assume that raw materials are
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Unformatted text preview: automatically added when labor is increased- Q = f(labor)- Table 1: A production Function and Total Cost; Caroline’s Cookie Factory- Costs of production come from production function because inputs need to be paid for- Notice that TC slope up and at an increasing rate as Q rises- Why? Because as productivity of workers falls costs rise faster as Q increases. Each additional worker produces less than previous worker but is paid the same- Table 2: The Various Measures of Cost: Conrad’s Coffee Shop - FC/Q +(VC/Q) = TC/Q- change TC/change Q- Picture all these costs- Table 4- General Features- MC rises- ATC is u - shaped- Why? Recall ATC = AFC + AVC- AFC declines but slower and slower- AVC rises continuously- Efficient scale is where ATC is a minimum- MC crosses ATC where ATC is at a minimum. Because MC drives ATC ad either pulls it down or pulls it up when MC < ATC, ATC falls and when MC>ATC, ATC rises- GPA (like ATC) vs. test course grade (like MC)-...
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