Week6.CostsandCompetition.2007

# Week6.CostsandCompet - ECMA04HWeek6 (inthe shortrun E.g,TC=400 5q q2 FC=300 VC= MC=dTC/dq incrementalcost Withoutcalculus,MC=TC/q(anapproximation

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ECMA04H  Week 6 Costs and Perfect Competition What does the typical graph of cost curves look like (in the  short run)?

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E.g., 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 = ΔTC/Δq  (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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How will these costs affect profit maximization by the  individual firm? We assume that firm’s objective is to maximize profit  = TR – TC Π Notice that this must include all costs e.g., video store operated by owner and his family every week: \$2500 in rental income, pay out \$1000 for rental  of space, \$800 for new videos  Accounting profit = \$700 Economic profit must include costs of all resources used by  the business that have alternative opportunities (i.e., the  labour of the owner and family, perhaps interest on owner- invested capital) In general Accounting profit > Economic profit
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## This note was uploaded on 06/13/2011 for the course ECON A04 taught by Professor Mk during the Spring '07 term at University of Toronto- Toronto.

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Week6.CostsandCompet - ECMA04HWeek6 (inthe shortrun E.g,TC=400 5q q2 FC=300 VC= MC=dTC/dq incrementalcost Withoutcalculus,MC=TC/q(anapproximation

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