C5-6-IncrementalAnalysis_2010-03-04 - More Cost Concepts...

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More Cost Concepts Chapter 5 – Production and Costs ECON 303 Managerial Economics, Spring 2010 Edward L. Millner , Department of Economics Copyright Millner 2009-10 Before class Read the Learning Objectives for this chapter Organize your notes from the previous class. Studies show that if you review and organize your notes the day you take them you will retain 80% of the information for 8 weeks. Read the review material. Write down answers to the Review Questions that are due. Be ready to submit your answers with your “clicker” at 11:00. Work on each of the Lecture Problems . Read the notes linked to them and the pages in the book that the notes reference. Pay close attention to the demonstration problems in the book. Jot down an answer, an outline to an answer, the beginning of an answer, or “I am lost”, next to each question. Be ready to read aloud upon request what you have written. Read what is next . More Cost Concepts, p. 1 of 8
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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 when an action’s effect on profit, Calculate total cost, variable cost, fixed cost, average total cost, average variable cost, average fixed cost, and marginal cost. Review Costs in the short run Economies of scale exist when the long-run average cost decreases as the firm increases its output. Diseconomies of scale exist when the long-run average cost increases as the firm increases its output. Constant returns to scale
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This note was uploaded on 11/04/2010 for the course ECON 303 taught by Professor Shrestha during the Fall '08 term at VCU.

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C5-6-IncrementalAnalysis_2010-03-04 - More Cost Concepts...

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