Lecture+15

# Lecture+15 - Announcements MT1 and answers are posted on...

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Announcements MT1 and answers are posted on Scholar. HW for Ch 7 due on Thursday Starting Ch 8 on Wednesday. Today is the drop deadline.

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COSTS IN THE SHORT RUN – MARGINAL COST In the short run, every firm is constrained by some fixed input that (1) leads to diminishing returns to variable inputs and (2) limits its capacity to produce. As a firm approaches that capacity, it becomes increasingly costly to produce successively higher levels of output. Marginal costs ultimately increase with output in the short run. So the law of diminishing marginal returns is the same as the law of increasing marginal costs.
COSTS IN THE SHORT RUN – MARGINAL COST The Shape of the Marginal Cost Curve in the Short Run Declining Marginal Product Implies That Marginal Cost Will Eventually Rise with Output

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COSTS AND THE PRODUCTION PROCESS Total Average and Marginal Product ) ( TP slope L TP MP L = =
COSTS IN THE SHORT RUN Graphing Total Variable Costs and Marginal Costs Total Variable Cost and Marginal Cost for a Typical Firm MC TVC TVC q TVC TVC = = = = 1 Δ of slope

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6 of 31 COSTS IN THE SHORT RUN Marginal cost is the cost of one additional unit . Average variable cost is the total variable cost divided by the total number of units produced. Short-Run Costs of a Hypothetical Firm (1) q (2) TVC (3) MC ( TVC ) (4) AVC ( TVC/q ) (5) TFC (6) TC ( TVC + TFC ) (7) AFC ( TFC / q ) (8) ATC (TC/q or AFC + AVC) 0 \$ 0 \$ - \$ - \$ 1,00 0 \$ 1,000 \$ - \$ - 1 10 10 10 1,00 0 1,010 1,000 1,010 2 18 8 9 1,00 0 1,018 500 509 3 24 6 8 1,00 0 1,024 333 341 4 32 8 8 1,00 0 1,032 250 258 5 42 10 8.4 1,00 0 1,042 200 208.4 - - - - - - - - - - - - - - - - - - - - - - - - 500 8,000 20 16 1,00 9,000 2 18
COSTS IN THE SHORT RUN Marginal cost intersects average variable cost at the lowest, or minimum, point of AVC. An important point about graphing Average Variable Costs and Marginal Costs

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The relationship between marginal and average Homework Grade (Marginal) Total Points Average Grade 1 90 90 90 2 80 170 85 3 100 270 90 4 70 340 85 5 85 425 85 6 55 480 80 When the marginal score is below the average, it pulls the average down. When the marginal score is above the average, it pulls the average up and when the two are equal, the average does not change. The same relationship holds for marginal cost and variable cost.
COSTS IN THE SHORT RUN To get TOTAL COSTS , we just add fixed costs and variable costs

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## This note was uploaded on 12/06/2011 for the course ECON 2005 taught by Professor Zirkle during the Fall '07 term at Virginia Tech.

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Lecture+15 - Announcements MT1 and answers are posted on...

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