Week_6._Costs.ECMA04.2010

Week_6._Costs.ECMA04.2010 - ECMA04HWeek6...

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ECMA04H  Week 6 Midterm Test on Wednesday 5-7 p.m. All students with last names beginning with the  letter A through U  should go to the Gym Students with last name beginning with the letter   V or the letter Y  should go to SW-221 Students with last name beginning with the letter   W or the letter X  should go to SW-309 Students with last name beginning with the letter   Z  should go to SW-319
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q = f(K, L) Production Function q = g(L) Short-run Production Function dq/dL Marginal Product of Labour d 2 q/dL 2   (or  dMP L /dL) < 0 (eventually) This is called diminishing marginal product “Law of Diminishing Returns” (or law of  diminishing marginal product, or law of variable  proportions) The law states "that we will get less and less extra output when we add
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additional doses of an input while holding other inputs fixed. In other words, the marginal product of each unit of input will decline as the amount of that input increases holding all other inputs constant.” Wikipedia Draw a short-run production function and the  associated marginal product curve. Malthus  (Malthusian economics) Thomas Carlyle – the dismal science
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NOW we go to the next stage:  we want to link  production to costs.  First a few definitions related  to costs… TC = P K K + P L L P K K = (rental) cost of capital equipment P L L = cost of labour Where P K  is the price per unit of capital equipment And P L  is the price per unit of labour (e.g., the  wage rate per hour) And K is the number of units of capital equipment And L is the number of units of labour (e.g., the  number of hours of labour used in production)
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In short run, K fixed and L variable, so  P K K = fixed cost P L L = variable cost TC = P K K   +   P L L =  FC   + VC
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discuss the characteristic shapes of the cost curves in  the short run
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Week_6._Costs.ECMA04.2010 - ECMA04HWeek6...

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