2.24.10 &acirc;€“ Lecture Notes, ECON 201

# 2.24.10 &acirc;€“ Lecture Notes, ECON 201 - 2.24.10...

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2.24.10 – Lecture Notes, ECON 201 COSTS OF PRODUCTION General Principle: If you know the technology of production (the production function or total product curve), and if you know the prices of the inputs to production, then you can find the firm’s costs at any level of output. PUT ANOTHER WAY: Costs are determined by the technology of production and input prices - Let’s start with the total product curve for apples from the last section, and show how to get to costs of production Total Costs = Fixed + Variable Costs If there are fixed costs (costs associated with inputs that can’t be changed), then we can add these to the total variable costs to get total costs. Total Cost = FC + Total VC TC = FC + TVC Variable Costs = Costs that change as output changes Fixed Costs = Costs you will have no matter whether you produce a lot or none. Labor x Wage = TVC In the SR Fixed costs are fixed, you can’t get away from them. No Output = No Variable Costs ANALYZING THE BEHAVIOR OF… 1. Firms 2. In the Short-Run 3. When the maximum profit is the goal Total costs are derived from knowledge of production, and the prices of variable inputs. TOTAL COST GRAPHS

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2.24.10 &acirc;€“ Lecture Notes, ECON 201 - 2.24.10...

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