ECON 1101 Week 6 - ECON 1101 Week 6 Perfectly Competitive...

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Click to edit Master subtitle style 7/28/11 ECON 1101 – Week 6 Perfectly Competitive Supply: The Cost Side of the Market Frank, Jennings, and Bernanke: Ch 6 1 1
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7/28/11 2 6 Outline Types of factors Law of diminishing returns Costs curves in the short run Perfectly competitive markets Profit maximisation Demand curve for a firm in Perfect Competition The Supply Curve
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7/28/11 Variable Factors C or l as output changes can be changed in the short run E.g. Fixed Factors cannot be changed in the short run needed even if output is 0 E.g. 3 3 Types of Factors
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7/28/11 Short Run too short to change fixed factors long enough to change some (variable) factors can use existing fixed factors more intensely Long Run enough time to change all inputs no fixed factors all factors are variable 4 4 Time Periods
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7/28/11 5 5
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7/28/11 As additional variable inputs are added to a fixed input, output will eventually decrease. Occurs in the short run - some inputs are fixed The addition of variable inputs makes less and less difference to total output   6 6 Law of Diminishing Returns
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7/28/11 Overcrowding of the fixed factor Effect on costs ? 7 7 Why Diminishing Returns?
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7/28/11 Costs and Profit Explicit (economic costs) Payments made to outsiders for inputs used by the firm (rent, labour, raw materials) Implicit (opportunity cost) The potential earnings of the firm’s resources if they had been rented out to someone else. (normal profit) Profit defined: The total revenue a firm receives from the sale of its product minus all costs – explicit and implicit – incurred in producing it 8 8
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7/28/11
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