Lecture%2013%20March%207

Lecture%2013%20March%207 - Todays Agenda Short run cost...

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Today’s Agenda Short run cost functions 3 total cost functions: STC, TVC, TFC 3 average cost functions: SATC, AVC, AFC Marginal cost function: SMC
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Short Run Cost Functions Goal: find the lowest-cost way to produce Q given production function prices of inputs firm’s previously chosen levels of fixed factors of production Short run total cost p L ,p K = prices of labor and capital L*(Q), K*(Q) = optimal quantities of inputs STC(Q) = p L L*(Q) + p K K*(Q)
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Q L TP L K=K 0 Short Run Total Cost K = fixed input In the short run, K = K 0 . K*(Q) = K 0 . STC(Q) = p L L*(Q) + p K K 0 Q = F(K 0 , L) To find L*(Q), solve TP L for L as a function of Q, given K 0 . TP L
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Invert TP L to get L*(Q)
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Total variable cost Q L L*(Q) Q $ p L L*(Q)
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Total variable cost Q L L*(Q) Q $ TVC(Q) = p L L*(Q)
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STC(Q) = TVC(Q) + TFC(Q) Q $ TVC(Q) p K K 0 = TFC(Q) STC(Q)
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Short run average total cost: Average cost SATC(Q) = STC(Q) Q
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Short run average total cost: Average variable cost: Average cost SATC(Q) = STC(Q) Q AVC(Q) = TVC(Q) Q
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Short run average total cost: Average variable cost: Average fixed cost: Average cost SATC(Q) = STC(Q) Q AVC(Q) = TVC(Q) Q AFC(Q) = TFC(Q) Q
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Q $ STC(Q) Q 0 SATC equals the slope of ray from the origin to the STC
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Q $ STC(Q) STC(Q 0 ) Q 0 SATC equals the slope of ray from the origin to the STC
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Q $ STC(Q) SATC equals the slope of ray from the origin to the STC SATC is very large when Q is small.
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Q $ STC(Q) SATC equals the slope of ray from the origin to the STC SATC is very large when Q is small.
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Q $ STC(Q) SATC equals the slope of ray from the origin to the STC SATC is very large when Q is small.
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Q $ STC(Q) SATC equals the slope of ray from the origin to the STC SATC is very large when Q is small.
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This note was uploaded on 03/08/2011 for the course ECON 220 taught by Professor Cai during the Spring '08 term at Rutgers.

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Lecture%2013%20March%207 - Todays Agenda Short run cost...

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