Chapter 7

# Chapter 7 - Section 7.2 Short Run Costs TC = FC VC AC =...

This preview shows pages 1–5. Sign up to view the full content.

Section 7.2 Short Run Costs TC = FC + VC AC = TC/q AVC = VC/ q AFC = FC/q MC = dTC /dq Observations worth noting: MC = w/ MP L So, MC starts to rise once MP L starts to diminish Example : Ch. 7, exercise 2, page 261

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
a) Fill in the table Units of Output Total Cost Fixed Cost Variable Cost Average Fixed Cost Average Variable Cost Average Total Cost 0 100 1 125 2 145 3 157 19 4 177 5 202 6 236 7 270 38.6 8 326 9 398 10 490 b) What’s the marginal cost of the 10 th unit of output? Example : Ch. 7, exercise 8, page 262 Given q = 5KL, r = 10,000, w = 2,000 In the short run, K is fixed at K = 5. Find equations for TC, AC and MC: Looking at the previous example, a more complex cost function is necessary to get a U-shaped AC curve and rising MC.
Example : Ch. 7 Problem Set, problem 9 Consider C = Q 3 - 100Q 2 + 3000Q (a cubic cost function) Find equations for AC and MC. Section 7.3 Long Run Costs Recall, Inputs L, K both variable P L = w wage rate P K = r rental rate Cost of any (L,K) combination: C = w L + r K Isocost Line : All (L,K) combinations s.t. w L + r K = C 0 Recall, Isoquant …. All (L,K) combinations s.t. q = f(L,K) = q 0

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Cost Minimization: Find (L * ,K * ) such that ……. Tangency Condition:
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 09/25/2010 for the course ECON Econ 2296 taught by Professor W.graygiovannetti during the Fall '10 term at Langara.

### Page1 / 12

Chapter 7 - Section 7.2 Short Run Costs TC = FC VC AC =...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online