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lecture 24

# lecture 24 - LECTURE 24 FIRMS COSTS OF PRODUCTION Last...

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2010: LECTURE 24 1 LECTURE 24: FIRMS: COSTS OF PRODUCTION: Last class: MC - what it is - how to determine - why upward sloping This class: ATC - what it is - how to determine - why U-shaped MC goes through ATC at bottom of U. Implications for firm size

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2010: LECTURE 24 2 Last class: firm with production and cost structure: PRODUCTION RELATIONSHIP (From engineers) COST STRUCTURE Q (units/ mth) KL K - c o s t (‘000$/mth) L-cost (‘000$ /mth) TC (‘000$/mth) 0 10 0 100 0 100 10 10 10 100 50 150 20 10 25 100 125 225 30 10 45 100 225 325 40 10 70 100 350 450 50 10 100 100 500 600 2010: LECTURE 24 3 Calculated MC and then drew: This preview has intentionally blurred sections. Sign up to view the full version. View Full Document 2010: LECTURE 24 4 AVERAGE TOTAL COST Full cost of a typical unit: 2010: LECTURE 24 5 Q (unit/m th) KL K - c o s t (‘000$ /mth) L-cost (‘000$/mth) TC (‘000$ /mth) MC (‘000$/unit) ATC (‘000$ /unit) 0 100 4 10 150 15 20 225 11.25 30 325 10.8 40 450 11.25 50 600 12

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2010: LECTURE 24 6 - U-shaped. - intersects MC curve at bottom of the U.
2010: LECTURE 24 7 3 THINGS TO EXPLAIN (1) Why is MC upward sloping ? (Law of Diminishing MPL) (2) Why is average total cost U-shaped? (3) Why does MC curve go through bottom of ATC's U?

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2010: LECTURE 24 8 U-SHAPED AVERAGE COST Average Fixed Costs :
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lecture 24 - LECTURE 24 FIRMS COSTS OF PRODUCTION Last...

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