C5-1_Production_ECON303_20101-2010-02-24

# C5-1_Production_ECON303_20101-2010-02-24 - Production...

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Learning Objectives The student will understand that: (1) optimizing decisions are based on the principle of equating marginal (or incremental) benefits to marginal (or incremental) costs, (2) optimizing firms use those resources that yield the most marginal revenue per dollar spent, (3) both economies and diseconomies of scale can arise as a firm increases its scale of operation and, to survive in the long run, a firm must achieve a Minimum Efficient Scale of operations, and (4) a firm optimally produces multiple products in the same plant when the production process exhibits economies of scope and cost complementarities are a sufficient, but not a necessary condition for economics of scope. Demonstrable outcomes are the abilities to: Calculate and interpret marginal and average products and value marginal product, Identify how a change in employment affects profit, Determine the profit maximizing level of employment, Determine when and how a firm can reduce the total cost of producing a given level of output, Identify whether a firm is experiencing economies or diseconomies of scale, Determine the Minimum Efficient Scale of operations, Identify whether or not economies of scope and cost complementarities exist. Determine the relevant costs and benefits to consider for an action, Calculate total cost, variable cost, fixed cost, average total cost, average variable cost, average fixed cost, and marginal cost. Review Review pp. 90-95 Point elasticities ΔQ d x P x dQ d x P x ∂Q d x P x E Qx,Px = ------- * ------ = either ------ * ----- or ------- * ----- ΔP x Q d x dP x Q d x ∂P x Q d x ΔQ d x H ∂Q d x H E Qx,H = ------- * ------ = ------ * ----- ΔH Q d x ∂H Q d x where H denotes P y , M, or some other variable that affects the quantity demanded. Common functional forms
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C5-1_Production_ECON303_20101-2010-02-24 - Production...

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