econ101711 - Microeconomics Oct. 17th, 2011 Marginal...

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Microeconomics Oct. 17 th , 2011 Marginal Productivity and Marginal Cost How we get a neoclassical supply curve. And why it is wrong. The BIG Ideas In the short run , when other inputs like machinery or buildings are fixed, marginal productivity falls because variable inputs (labor) run out of other inputs with which to work. Marginal costs rise because of diminishing marginal productivity. That makes the supply curve upward sloping . In the long run , where no inputs are fixed, marginal productivity is constant or increasing. Therefore, the long-run supply curve is flat or downward sloping . Thinking along the margin How do you increase output? Imagine you are a farmer – Marijuana is the largest crop in California. Production of $14 b (2006) and it was the largest for the US at $36 billion (2006) Americans smoke a lot of pot U.S. Weed market $113 billion, 14 million kilos or more. (UN estimates US production of 10 – 14 million kilos plus imports.) State and local governments lose
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econ101711 - Microeconomics Oct. 17th, 2011 Marginal...

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