econ 211 lecture 13

econ 211 lecture 13 - Econ 211 Short-run Costs: Total Cost...

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Econ 211 Lecture 15 Patrick McLaughlin Short-run Costs: Total Cost Marginal cost Average cost Total cost: the cost of all the factors of production a firm uses. This is the sum of total fixed cost and total variable cost Total fixed cost: cost of the firm’s fixed inputs. For Sid’s sweaters, TFC includes the cost of renting knitting machines (they could be renting them out) and the cost of renting the building. Total variable cost: cost of the firm’s variable inputs. For Sid’s, this is only labor. Total variable cost changes as total product changes. Labor costs $25 per day per unit for Sid. TC = TFC + TVC See the following chart, and we’ll graph it: Labor Output TFC TVC TC MC AFC AVC ATC (dollars per day) (dollars per sweater) A 0 0 25 0 25 - - - 6.25 B 1 4 25 25 50 6.25 6.25 12.50 4.17 C 2 10 25 50 75 2.50 5.00 7.50 8.33 D 3 13 25 75 100 1.92 5.77 7.69 12.50 E 4 15 25 100 125 1.67 6.67 8.33 25.00 F 5 16 25 125 150 1.56 7.81 9.38 Marginal Cost: the increase in total cost that results from a one-unit increase in output. Sometimes we have to approximate, if we don’t have specific cost formulas and don’t
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econ 211 lecture 13 - Econ 211 Short-run Costs: Total Cost...

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