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Lecture 17 March 6

# Lecture 17 March 6 - Announcements HW for ch 7 due on the...

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Announcements HW for ch 7 due on the Monday we get back. Do it sooner rather than later. 1 of 33

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Short Run Costs Back to the short run 2 of 31
Short Run Costs 3 of 31 Cost Curves Q \$ ATC=AC AVC MC AFC

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Looking ahead: What the costs tell us. AFC: As Q increases, the overhead (or FC) is spread out and the curve approaches the x-axis. It is asymptotic to the x-axis. Technically, AFC can be omitted as long as both the ATC and AVC curves are included since the vertical distance between these two curves is equal to the AFC (i.e. AFC = ATC – AFC). Doesn’t really tell us much – in the short run, we ignore these costs. 4 of 31
Looking ahead: What the costs tell us. AVC: Gives us the “shutdown point,” which is the boundary for whether a particular firm should stop production or continue to produce in the short run. In the short run, if a firm cannot make enough to cover its variable costs, then it shouldn’t make anything. 5 of 31

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Looking ahead: What the costs tell us. ATC: Gives us information about the level of profits (or losses) a firm will receive for a given amount of output. Profits=TR-TC TC=ATC*Q In the long run, ATC=AVC (since all costs are variable). A firm will need profits to be greater than or equal to zero to stay in business in the long run. 6 of 31
Looking ahead: What the costs tell us. MC: Gives the profit maximizing level of output. We will see soon that firms will want to produce where MR=MC in order to maximize profit (where MR=Marginal Revenue). MC also allows us to say something about the economic efficiency of a certain level of output (economies of scale). This is the most important of the 4 curves. 7 of 31

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Benevolent Dictator Suppose I am a benevolent dictator and I am trying to figure out how much of a good to make and how much to charge for it.
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Lecture 17 March 6 - Announcements HW for ch 7 due on the...

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