Lecture 13 - ECONOMICS 100A Professor Dan Acland 10/07/10...

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Professor Dan Acland 10/07/10 Lecture 13 ASUC Lecture Notes Online is the only authorized note-taking service at UC Berkeley. Do not share, copy, or illegally distribute (electronically or otherwise) these notes. Our student-run program depends on your individual subscription for its continued existence. These notes are copyrighted by the University of California and are for your personal use only. D O N O T C O P Y Sharing or copying these notes is illegal and could end note taking for this course. NO ICLICKER QUIZ ANNOUNCEMENTS I am going to explain some key points by walking through three sample questions of the type that might be on the midterm (on Tuesday), as if I were testing you on Chapter 13. So you’ll see an example of each of the three parts of the midterm. LECTURE Slide : Lecture outline: 1. An example of a question from section A of the exam, “short answer.” a. Short-run vs. long-run supply 2. An example of a question from section B of the exam, “what would happen if…” a. Shut-down decision in the short-run. 3. An example of a question from section C of the exam, “problem solving.” a. Long-run impact of changes in factor prices on supply. Slide : 1. An example of a question from section A of the exam, “short answer.” - Answer the following question in one or two sentences at most ; and you will only need very simple math. - For a price-taking firm that has increasing marginal cost eventually, in other words, a “typical firm,” why is the long-run supply curve always less steep than the short-run supply curve? Before I explain it, would someone like to try to take a stab at the answer? Student: Because it doesn’t account for the substitution effect. You’re on the right track; the substitution effect is implicated. Does anyone else want to expand on that? Student: Isn’t it because in the short-run, it’s easier to produce because you’re on the upward slope of your production frontier, and it gets harder in the long-run. And in the long-run your fixed costs become variable. Your expenditures become part of your cost so you’re spending less in general. Okay, so part of that is right on. Part of it is somewhere else. Student: Your expenditure (sunk costs) even out more in the long-run. They’re fixed in the short-run and become variable in the long-run. And therefore you distribute the sunk costs over more units. So, we’re gearing in on the right answer. Can someone give an answer that explains substitution effect and production and why fixed costs in the short-run become variable in the long-run? Student: The substitution effect allows you to substitute away from the good that is expected in the short-run, which means the input is expensive. So in the long-run, you’re able to move to cheaper
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This note was uploaded on 02/06/2012 for the course ECON 100A taught by Professor Woroch during the Fall '08 term at University of California, Berkeley.

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Lecture 13 - ECONOMICS 100A Professor Dan Acland 10/07/10...

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