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Unformatted text preview: --Profit is the difference between total revenue (amount produced market price) and total costs (amount produced average total cost).-- Point A would not allow the firm to produce at the selected level (isoquant). Point C is at the appropriate level of production, but it is not the lowest possible cost for that level. Cost is minimized at Point B, where the isoquant is tangent to the isocost line. Short Run 1. Short run: the time frame in which fixed costs are not changeable. 2. In the short run, K is usually fixed, so the production function will reflect how the quantity produced changes as the labor input changes. 3. Returns to labor: 1. Increasing returns to labor: MP increases and MC decreases as more labor is added. 2. Decreasing returns to labor: MP decreases and MC increases as more labor is added. 4. Relationships between the short-run cost curves: 1. When ATC and AVC are falling (rising), MC is lower (higher). This means that the MC curve will intersect the ATC and AVC curves at their lowest points. 2. As the quantity produced increases, fixed costs become a smaller percentage of total costs. This means that the distance between the ATC and As the quantity produced increases, fixed costs become a smaller percentage of total costs....
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- Spring '11