Lecture+14+October+21

Lecture+14+October+21 - Todays Agenda Short-run cost...

Info iconThis preview shows pages 1–28. 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 Aplia assignment on isoquants and isocost lines, previously due Sunday night, has been dropped .
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)
Background image of page 19

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

View Full DocumentRight Arrow Icon
Obtaining the cost functions algebraically Production function Price of labor Price of capital Capital stock QK L p p K L K = = = = 5 1200 15 16 1 2 1 2 0
Background image of page 20
Substitute K 0 to obtain TP L QK L = 5 1 2 1 2
Background image of page 21

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

View Full DocumentRight Arrow Icon
Substitute K 0 to obtain TP L QK L L = = 5 5 1 2 1 2 1 2 1 2 0 K 0 16 =
Background image of page 22
Substitute K 0 to obtain TP L QK L L = = 5 5 1 2 1 2 1 2 1 2 0 K K 0 0 16 4 1 2 = =
Background image of page 23

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

View Full DocumentRight Arrow Icon
Substitute K 0 to obtain TP L QK L L = = 5 5 1 2 1 2 1 2 1 2 0 K K 0 0 16 4 1 2 = =
Background image of page 24
Substitute K 0 to obtain TP L QK L L QL = = = 5 5 20 1 2 1 2 1 2 1 2 1 2 0 K K 0 0 16 4 1 2 = = Total product of labor
Background image of page 25

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

View Full DocumentRight Arrow Icon
Invert TP L to obtain L*(Q|K 0 ) QL L Q L Q = = = 20 20 8000 1 2 1 3 3 Total product of labor Labor requirements function
Background image of page 26
Invert TP L to obtain L*(Q|K 0 ) QL L Q L Q = = = 20 20 8000 1 2 1 2 3 Total product of labor Labor requirements function
Background image of page 27

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

View Full DocumentRight Arrow Icon
Image of page 28
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/10/2011 for the course ECON 220:102 taught by Professor Rubin during the Fall '11 term at Rutgers.

Page1 / 73

Lecture+14+October+21 - Todays Agenda Short-run cost...

This preview shows document pages 1 - 28. Sign up to view the full document.

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