Econ 201, week 10
Econ 201, week 10 ECN 201 (Professor Colleen Scott)
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ECN 201 (Professor Colleen Scott)
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This 2 page Class Notes was uploaded by Thanh Notetaker on Sunday April 24, 2016. The Class Notes belongs to ECN 201 (Professor Colleen Scott) at La Salle University taught by Colleen Scott in Spring 2016. Since its upload, it has received 14 views. For similar materials see Introductory Microeconomics in Economcs at La Salle University.
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Date Created: 04/24/16
ECON 201. Week Ten (April 21 note) The firm makes many decisions to achieve its main objective: profit maximization. Some decisions are critical to the survival of the firm. Some decisions are irreversible (or very costly to reverse). Other decisions are easily reversed and are less critical to the survival of the firm, but still influence profit. All decisions can be placed in two time frames: The short run The long run The Short Run The short run is a time frame in which the quantity of one or more resources used in production is fixed. For most firms, the capital, called the firm’s plant, is fixed in the short run. Other resources used by the firm (such as labor, raw materials, and energy) can be changed in the short run. Short-run decisions are easily reversed. The long run is a time frame in which the quantities of all resources—including the plant size— can be varied. Long-run decisions are not easily reversed. A sunk cost is a cost incurred by the firm and cannot be changed. If a firm’s plant has no resale value, the amount paid for it is a sunk cost. Sunk costs are irrelevant to a firm’s current decisions. Total product is the total output produced in a given period. The marginal product of labor is the change in total product that results from a one-unit increase in the quantity of labor employed, with all other inputs remaining the same. The average product of labor is equal to total product divided by the quantity of labor employed. Total Cost A firm’s total cost (TC) is the cost of all resources used. Total fixed cost (TFC) is the cost of the firm’s fixed inputs. Fixed costs do not change with output. Total variable cost (TVC) is the cost of the firm’s variable inputs. Variable costs do change with output. Total cost equals total fixed cost plus total variable cost. That is: TC = TFC + TVC
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