Lecture+14+October+25

Lecture+14+October+25 - Todays Agenda Short-run cost...

Info iconThis preview shows pages 1–25. Sign up to view the full content.

View Full Document Right Arrow Icon
Today’s Agenda Short-run cost functions in review Cost in the long run Supply in the short run
Background image of page 1

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

View Full DocumentRight Arrow Icon
Profits π () QT R Q STC Q =−
Background image of page 2
Profits π () QT R Q STC Q =− STC = p K K 0 + p L L* Total fixed cost Total variable cost
Background image of page 3

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

View Full DocumentRight Arrow Icon
Invert TP L to get L*(Q) Q L TP L Q L L*(Q)
Background image of page 4
Multiply labor requirements L*(Q) by the price of labor p L to find Total Variable Cost TVC Q L L*(Q) Q $ p L L*(Q)
Background image of page 5

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

View Full DocumentRight Arrow Icon
Q L L*(Q) Q $ TVC(Q) = p L L*(Q) Multiply labor requirements L*(Q) by the price of labor p L to find Total Variable Cost TVC
Background image of page 6
STC(Q) = TVC(Q) + TFC(Q) Q $ TVC(Q) p K K 0 = TFC(Q) STC(Q)
Background image of page 7

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

View Full DocumentRight Arrow Icon
Short run average total cost: Average variable cost: Average fixed cost: Average cost SATC(Q) = STC(Q) Q AVC(Q) = TVC(Q) Q AFC(Q) = TFC(Q) Q
Background image of page 8
Q $ STC(Q) Q' SATC equals the slope of ray from the origin to the STC Q $/Q SATC(Q) Q'
Background image of page 9

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

View Full DocumentRight Arrow Icon
Average variable cost Q $ TVC(Q) Q $/Q SATC(Q) Q' AVC(Q) Q"
Background image of page 10
Average fixed cost STC = TVC + TFC STC TVC + TFC Q = Q Q AFC = SATC - AVC
Background image of page 11

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

View Full DocumentRight Arrow Icon
Average fixed cost Q $/Q SATC(Q) AVC(Q)
Background image of page 12
Marginal cost Change in STC associated with changing Q by one unit Slope of tangent to STC
Background image of page 13

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

View Full DocumentRight Arrow Icon
Marginal cost SMC STC Q SMC TVC Q TFC Q SMC MVC MFC = =+ Δ Δ Δ Δ Δ Δ
Background image of page 14
Marginal cost SMC STC Q SMC TVC Q TFC Q SMC MVC MFC = =+ Δ Δ Δ Δ Δ Δ
Background image of page 15

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

View Full DocumentRight Arrow Icon
Marginal cost SMC STC Q SMC TVC Q TFC Q SMC MVC MFC = =+ Δ Δ Δ Δ Δ Δ
Background image of page 16
SMC STC Q SMC TVC Q TFC Q SMC MVC MFC = =+ Δ Δ Δ Δ Δ Δ Marginal cost 0
Background image of page 17

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

View Full DocumentRight Arrow Icon
SMC = slope of tangent to STC, TVC Q $ TVC(Q) TFC(Q) STC(Q)
Background image of page 18
Q $/Q SATC(Q) AVC(Q) SMC(Q) Use the average-and-marginal relationships to position the cost functions properly.
Background image of page 19

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

View Full DocumentRight Arrow Icon
Diminishing returns to labor Rising SMC Q L TP L
Background image of page 20
Diminishing returns to labor Rising SMC Q L TP L
Background image of page 21

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

View Full DocumentRight Arrow Icon
Diminishing returns to labor Rising SMC Q L TP L
Background image of page 22
Diminishing returns to labor Rising SMC Q $/Q SATC(Q) AVC(Q) SMC(Q) Q L TP L
Background image of page 23

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

View Full DocumentRight Arrow Icon
Cost functions: algebraic example, cont.
Background image of page 24
Image of page 25
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 76

Lecture+14+October+25 - Todays Agenda Short-run cost...

This preview shows document pages 1 - 25. Sign up to view the full document.

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