09.15.08 - ECONOMICS 1 Professor Kenneth Train 9/15/08...

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ECONOMICS 1 Professor Kenneth Train 9/15/08 Lecture 5 ASUC Lecture Notes Online is the only authorized note-taking service at UC Berkeley. Do not share, copy or illegally distribute (electronically or otherwise) these notes. Our student-run program depends on your individual subscription for its continued existence. These notes are copyrighted by the University of California and are for your personal use only. D O N O T C O P Y Sharing or copying these notes is illegal and could end note taking for this course. ANNOUNCEMENTS LECTURE Today we’ll be talking about various aspects of cost and how these costs can be graphed. This is important for studying competition and other forms of market behavior. COSTS OF PRODUCTION Fixed Costs, Variable Costs and Total Cost Fixed costs do not vary with the quantity of goods produced. There is always some cost for a firm associated with establishing a presence that the amount will not change. Then there is variable cost , which varies with the amount produced. Total cost is the sum of those two. An example: If a firm did not produce anything it would still need to spend $9,000 in legal costs, rent, loans, etc. This is its fixed cost (FC.) It would then spend $1,000 in variable costs (VC) as it produces one unit of good. Note that the VC always increases as the quantity (q) goes up. Total cost equals the sum of FC and VC, meaning $9,000 + $1,000 = $10,000. We can graph these costs with quantity (q) on the X-axis and dollars ($) on the Y. The fixed cost is the distance between the origin and the total cost at q = 0. Notes on Total Cost Total cost: - Is the minimum possible cost of producing output - Rises as output rises - Includes a reasonable profit for the entrepreneurs and managers
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ECONOMICS 1 ASUC Lecture Notes Online: Approved by the UC Board of Regents 9/15/08 D O N O T C O P Y Sharing or copying these notes is illegal and could end note taking for this course. 2 Reasonable Profit TC includes a reasonable profit; you need to compensate managerial staff for their capital and the entrepreneurial talent they put in, but also at the minimum that is necessary for production. This profit is an abstract concept—it is the profit you
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This note was uploaded on 07/25/2011 for the course ECON 1 taught by Professor Martholney during the Fall '08 term at Berkeley.

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09.15.08 - ECONOMICS 1 Professor Kenneth Train 9/15/08...

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