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costs.201bb

# costs.201bb - Econ 100A Production Costs Part II(Chapters...

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Econ 100A: Production: Costs, Part II (Chapters 20, 21) Thomas G. Koch Fall 2008 Thomas G. Koch Production: Choice (20, 21 B) 1(44)

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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)

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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 Costs—must be paid . . . no matter the level of output E.g., rent for a Starbucks Variable Costs—vary according to . . . level of output Coffee beans, milk Thomas G. Koch Production: Choice (20, 21 B) 5(44)

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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)

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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)

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Average variable costs Expect them to rise Think about fixed space in coffee shop
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costs.201bb - Econ 100A Production Costs Part II(Chapters...

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