Week5.ProductionandCosts.2010

Week5.ProductionandCosts.2010 - ECMA04H Week5 Dontforget:...

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ECMA04H  Week 5 Don’t forget: Midterm Test Wed October 20 th  from 5 - 7  p.m.  Look at course website  ( www.utsc.utoronto.ca/~cleveland ) to see where to go. We will finish up Elasticity and Excess Burden of an  Excise Tax and then move on to… Production, Productivity and Costs i.e., what lies behind the supply curve First, let’s remember how to analyze the incidence of a tax  and the excess burden of a tax.
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$40 $10 $60 Suppl y Deman d Price Market for bottles of liquor in Toronto 2,000 Quantity Per month 0
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$40 $10 $60 Suppl y Deman d Price Market for bottles of liquor in Toronto 2,000 Quantity Per month 0
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$40 $10 $60 Suppl y Deman d Price Market for bottles of liquor in Toronto 2,000 Quantity Per month 0
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Identify on the graphs: Buyers’ Share of the tax Sellers’ Share of the  tax Amount of tax revenue Loss of consumer surplus Loss of producer surplus Excess Burden (also called deadweight loss)
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How is excess burden affected by elasticity?  Let’s look  at some examples.
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Production, Productivity and Costs Production, productivity and costs Basic objective….understand diminishing marginal  productivity and the shapes of typical cost curves in short  run. Why?: 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…. )
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A simple story to motivate what this week is all about: Imagine that you and 4 other friends are in a lawn mowing  business.  You have only one lawnmower (fixed amount of  capital).  The following is the “production function” 1 workers + 1 lawnmower = 5 lawns per day 2 workers + 1 lawnmower = 9 lawns per day 3 workers + 1 lawnmower = 12 lawns per day 4 workers + 1 lawnmower = 14 lawns per day
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Week5.ProductionandCosts.2010 - ECMA04H Week5 Dontforget:...

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