2Lecture

2Lecture - Lecture 2 Exam 2 Previous Class Cost of...

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Lecture 2 Exam 2 13:14 Previous Class Cost of production Theory of costs Importance of cost Short term vs Long term Avg Variable cost Avg product cost Today The relationship betwwn average variable cost and average product cost (AVP and AP) R = resources (inputs) P R  = resources price AVC = TVC / Q or TVC = AVC x Q AVC = P R  x R AVC = (P R  x R) / 2 = P R  x (R / Q) AP = Q / R AVC = P R  x ( 1 / AP ) The relationship between MC and MP: MC = ΔTC / ΔQ = (ΔTFC + ΔTVC) / ΔQ = ΔTVC / ΔQ Where TC = TFC +TVC Where ΔTFC = 0 MC = ΔTVC / ΔQ = Δ (P R  x (R / Q)) = P x (ΔR / ΔQ) MP = ΔQ / ΔR MC = P R  x (1 / MP) Lost Elasticities and returns to scale: If % ΔTC / % ΔQ if %ΔTC < % ΔQ –  η lost  < 1 – IRTS
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If % ΔTC / % ΔQ if %ΔTC > % ΔQ –  lost > 1 – DRTS η % ΔTC / % ΔQ if %ΔTC -- % ΔQ –  lost = 1 – CRTS
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2Lecture - Lecture 2 Exam 2 Previous Class Cost of...

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