EC 201 10-8-08 - E C 201 10-8-08 Goal: How does firm choose...

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EC 201 10-8-08 Goal: How does firm choose Q of output? Firm’s goal: maximize profit Profit= total revenue-total cost Total cost=total fixed cost + total variable cost Fixed costs: costs of fixed inputs Variable costs: cost of variable inputs As Q ↑, fixed costs don’t change As Q↑ , variable costs ↑ “short run” = period short enough that at least one input is fixed Q TFC AFC =(fixed cost per unit TFC/Q) 1. $1000 - 2. 1000 1000 3. 1000 500 4. 1000 333 1/3 5. 1000 250 1000 1000 Marginal cost=extra cost to produce one extra unit = ∆TVC/∆Q usually ∆Q = 1 Remember relationship between marg. + avg. If marg. > avg., avg. ↑ → if avg. ↑, must be marg. >avg. If marg. = avg. , avg. constant If marg. < avg. , avg. ↓
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TC= TFC + TVC divide by Q TC/Q = TFC/Q + TVC/Q ATC=AFC+AVC AFC is vertical distance between ATC+AVC Standard short-run cost curves o US govt. almost certainly will not default o Treasury bill is safe investment
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This note was uploaded on 04/19/2011 for the course EC 201 taught by Professor Ballard during the Fall '08 term at University of Michigan.

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EC 201 10-8-08 - E C 201 10-8-08 Goal: How does firm choose...

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