costs.201bb - Econ 100A: Production: Costs, Part II...

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Econ 100A: Production: Costs, Part II (Chapters 20, 21) Thomas G. Koch Fall 2008 Thomas G. Koch Production: Choice (20, 21 B) 1(44) Clickers Turn on your clicker Hit a button Thomas G. Koch Production: Choice (20, 21 B) 2(44) Exam is next time Similar format and structure Bring pencil, scientific calculator Pink scantrons Thomas G. Koch Production: Choice (20, 21 B) 3(44) Cost Minimization problem, Short Run min x 1 w 1 x 1 + w 2 x 2 such that f ( x 1 , x 2 ) = y 1 Solve for x * 1 ( w 1 , w 2 x 2 , y ) 2 Then use C = w 1 x * 1 + w 2 x 2 to get . . . 3 c ( w 1 , w 2 x 2 , y ), the cost function Thomas G. Koch Production: Choice (20, 21 B) 4(44) Two kinds of costs Fixed Costsmust be paid . . . no matter the level of output E.g., rent for a Starbucks Variable Costsvary according to . . . level of output Coffee beans, milk Thomas G. Koch Production: Choice (20, 21 B) 5(44) Breaking down the cost function c ( y ) = c v ( y ) + F c ( y )Total Cost c v ( y )Variable Cost F Fixed Cost Thomas G. Koch Production: Choice (20, 21 B) 6(44) Thinking about average cost Average cost of a cup of Starbucks coffee Fraction due to rent (fixed cost) Fraction due to beans, milk (variable cost) Thomas G. Koch Production: Choice (20, 21 B) 7(44) Breaking down average cost AC ( y ) = c ( y ) y = c v ( y ) y + F y = AVC ( y ) + AFC ( y ) Thomas G. Koch Production: Choice (20, 21 B) 8(44) Average fixed costs AFC ( y ) = F y As y grows, F holds steady So as y grows, AFC ( y ) falls As you sell more coffee, rent per cup of coffee falls Thomas G. Koch Production: Choice (20, 21 B) 9(44) Average variable costs Expect them to rise...
View Full Document

This note was uploaded on 09/12/2011 for the course ECON 100A/ 100B taught by Professor Staff during the Fall '08 term at UCSB.

Page1 / 44

costs.201bb - Econ 100A: Production: Costs, Part II...

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online