10.7.10 Notes

# 10.7.10 Notes - Long Run a time period in which all costs...

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10/7/10 Economics Notes Firms Continued Model we use for Firms is the Maximizing Profit Strategy Model What motivates the firm is “Profit Maximization” From an Econ stand-point, a firm or a worker, a consumer, a laborer want to maximize Profit Economic theory of pursuing more other than less, with all other things held the same Fixed Cost (FC) – fixed costs are costs that do not vary with output (ex. Property tax for a retail store). Variable Cost (VC) – the cost that vary with output (ex. The retail store needs more t- shirts, so they hire more workers, workers would be the variable cost) Total cost (TC) – sum of variable and fixed cost Short Run/Long run are linked to fixed cost and variable cost Short Run – the time frame for a firm where there is an existing fixed cost, and incurs some variable cost

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Unformatted text preview: Long Run a time period in which all costs vary, there are no fixed cost. Average Cost (AC) - equal to total cost divided by the number of goods produced. Marginal Cost (MC) extra cost of making one more unit of output (derive this by subtracting the two total costs difference for an additional quantity of good). Tells us about the profit maximizing output. Also tell us about the efficiency of the price quantity combination Average Variable Cost (AV) tell us about a firms shut down point. It tells us when its rational for a firm to simply shut down. When is it optimal to shut the thing down? If Marginal cost &gt; Average Cost, average will rise If Marginal cost = Average Cost, average will be unchanged If Marginal Cost &lt; Average Cost, Average will fall...
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## 10.7.10 Notes - Long Run a time period in which all costs...

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