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# 321_17 - A = 20 and B =100 Group Problem There are two...

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ECON 321 Spring 2011: Lecture 17 Chapter 21: Cost Curves

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Definitions for Chapter 21: Cost Curves Average Cost Function = Average Variable Cost + Average Fixed Cost The cost per unit of output (Cost divided by output) Marginal Cost Function: The additional cost of each unit (the slope, rate of change or derivative of the cost function w.r.t output) Average Marginal Relationship: If Marginal > Average Average will increase If Marginal < Average Average will decrease Therefore Average = Marginal at Average’s minimum.
Group Problem I sell lemonade, y , and it costs me \$ A per glass to produce. What is my total cost function? What is my Average Cost Function? What is my Marginal Cost Function? If I decide to make a sign that costs \$ B , what are my new cost functions? Plot my Average and Marginal Costs if

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Unformatted text preview: A = 20 and B =100. Group Problem There are two possible methods to produce output y : Method 1 requires: a \$200 investment with an additional \$1 per unit of output. Method 2 requires: \$10 investment and an additional \$5 per unit of output. 1. Write down formulae for each method. 2. Derive the average, average variable and marginal cost curves for both methods. 3. What is the best method to use if 30 units is desired? What is the best method to use if 100 units is desired? 4. What is the break even point between the two methods? Group Problem Output = y = f(J,L) = .1J ½ L ¾ 1. What are the returns to scale of this production function? 2. What is the Marginal Product of Labor when J = 100 ? 3. Is the Marginal Product of Labor increasing or decreasing?...
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321_17 - A = 20 and B =100 Group Problem There are two...

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