Chapter 10 - Outputs and Costs

Chapter 10 - Outputs and Costs - OUTPUT AND COSTS 10...

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10 CHAPTER OUTPUT AND COSTS
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Production. Costs. Banks: closing teller windows - replacing them with ATMs? Grocery store: replace check-out people with self- serve terminals? Auto makers have unused production capacity while electric utilities sometimes can’t produce enough to meet demand? Study of firms’ production possibilities and costs.
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Decision Time Frames The firm makes many decisions to achieve its main objective: profit maximization . All decisions can be placed in two time frames: The short run The long run
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Decision Time Frames The Short Run The short run is a time frame in which the quantity of one or more resources used in production is fixed. For most firms, the physical capital is fixed in the short run. Other resources used by the firm (labor, raw materials, energy) can be changed in the short run.
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Decision Time Frames The Long Run The long run is a time frame in which the quantities of all resources—including physical capital—can be changed. We will focus on the SHORT-RUN.
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Short-Run Technology Constraint To increase output in the short run , a firm must increase the amount of labor employed. Three concepts describe the relationship between output and the quantity of labor employed: Total product Marginal product Average product
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Short-Run Technology Constraint Product Schedules Total product is the total output produced in a given period. Marginal product of labor:
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Chapter 10 - Outputs and Costs - OUTPUT AND COSTS 10...

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