{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

EC 201 10-6-08 - EC 201 Firm behavior o o Assume that the...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
EC 201 10-6-08 Firm behavior o Assume that the firm’s goal is to maximize its profit o Total profit = (total revenue – total costs) Total revenue = P(price) * Q (sales) Depends of the degree of competition (market structure) Total costs o Time frames: short run long run o In the short run you can only vary output by altering the amount of labor and raw materials that you use. Plant & equipment are fixed o In the long run you can change output by changing any or all of your inputs o Types of costs: variable costs – costs that vary as you change output Fixed costs – costs that are independent of output o In the short run labor costs are variable but capital costs are fixed o In the long run, all costs are variable Short Run- ultimate goal is to figure out how total cost varies with sales (Q) o Two key measures of cost 1. Average cost (AC) = (total cost/ Q) The cost, on average, of producing one unit of output (unit cost) It can be used to calculate profit Profit = (P-AC) Q 2. Marginal cost (MC)= the increase in cost that comes about when the
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}