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Week5.ProductionandCosts.2007

Week5.ProductionandCosts.2007 - ECMA04H Week5 Production,...

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ECMA04H  Week 5 Production, Productivity and Costs Tight week …and our midterm test coming up (20%) When?  Friday Oct. 26 at 3 p.m. Where? Soon, find out at: www.utsc.utoronto.ca/~cleveland/ECMA04H What if you miss it? What’s on the test? Up to end of Week 6 – short run and long run costs faced by  perfectly competitive firms
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Second test – Friday, November 16 th  at 3 p.m. (makeup test for  those attending LIVE!) First, finish up material on excess burden of taxation…..from  last week.
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Production, productivity and costs Basic objective of this week….understand diminishing  marginal productivity and the shapes of typical cost curves in  short run. General objective: to understand the supply curve.  Decisions by  firms about how much to produce/supply.
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We assume that the objective of firms is to maximize  profits! They hire labour and purchase (or rent) capital  equipment and other inputs.  These inputs combine  together to produce output.  Output is sold to earn a  profit (or loss…. ) Most firms, most of the time, have no control over the  production technology available.  They adopt existing  technology.   We write this as q = f(K,L) K = inputs of capital  (machinery, buildings, etc) L = inputs of labour (hours of standardized worker) 5/7 An example of a production function:
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