ECMA04H.Costs.Week+6.2009

# ECMA04H.Costs.Week+6.2009 - ECMA04H Week 6 Costs how do...

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ECMA04H Week 6 Costs: how do they behave as output increases? What does the typical graph of cost curves look like (in the short run)?

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What is the algebra of cost curves? Example: TC = 400 + 5q + q 2 FC = 300 VC = MC = dTC/dq Rate of change of firm’s costs as output increases; incremental cost Without calculus…. , MC = Δ TC/ Δ q (an approximation)
AC = TC/q AC = (FC + VC)/q = AFC + AVC

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Find minimum of AC, AVC
Check value of MC at min AC and min AVC Graph MC, AC, AVC

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maximization by the individual firm? We assume that firm’s objective is to maximize profit Π = TR – TC Notice that this must include all costs e.g., video store operated by owner. every week: \$2500 in rental income, pay out \$1000 for rental of space, \$800 for new videos, no pay for owner but the opportunity cost of his labour is \$500 per week and the normal return on his money invested is \$200. Accounting profit = \$700
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ECMA04H.Costs.Week+6.2009 - ECMA04H Week 6 Costs how do...

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