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## Econ Lecture 10 Notes

by: Samantha Shea

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6

# Econ Lecture 10 Notes ECON 201

Samantha Shea
MSU

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These notes cover what was talked about in class on Monday, October 10th.
COURSE
Micro Economics
PROF.
Professor Liedholm
TYPE
Class Notes
PAGES
6
WORDS
CONCEPTS
Microeconomic, Lecture Notes
KARMA
25 ?

## Popular in Microeconomics

This 6 page Class Notes was uploaded by Samantha Shea on Monday October 10, 2016. The Class Notes belongs to ECON 201 at Michigan State University taught by Professor Liedholm in Fall 2016. Since its upload, it has received 5 views. For similar materials see Micro Economics in Microeconomics at Michigan State University.

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Date Created: 10/10/16
Lecture  10 Monday,  October  10,  20112:58  PM Last  time • Introduction  to  the  firm • Goal • Profit  maximization • Economic  verses  accounting  profit • Production  function Today • The  Firm • Production • Costs   • Examine  production  and  costs  of  a  real  firm  in  the  short  run   ○ One  input  is  fixed Time  Periods  of  Analysis • Market  period-­‐ period  of  time  where  a  firm  is  in  a  situation  where  all  inputs  are  fixed • Short  run  period-­‐ a  least  one  input  is  fixed • Long  run  peri-­‐all  inputs  are  variable,  nothing  is  fixed Michigan  Firm • Perfect  competition • Many  firms  producing  identical  product • Apple  farm  (firm) ○ 80  acres ○ 35,000  bushels  per  year Uncle  John's   • Fixed  inputs ○ Trees/  land ○ Building ○ Equipment • Variable  inputs ○ Labor • The  production  function  for  apples  on  a  Michigan  farm  can  be  written  like  this: • Q(apples)=f(labor,  fertilizer,  tractor,  time,  number  and  age  of  trees,  etc.) • The  dependent  variable  is  quantity  of  output  (number  of  apples  in  this  case) • The  independent  variables  are  quantities  of  inputs Single  Variable  total  product  curve Lecture  10 Monday,  October  10,  20112:58  PM Last  time • Introduction  to  the  firm • Goal • Profit  maximization • Economic  verses  accounting  profit • Production  function Today • The  Firm • Production • Costs   • Examine  production  and  costs  of  a  real  firm  in  the  short  run   ○ One  input  is  fixed Time  Periods  of  Analysis • Market  period-­‐ period  of  time  where  a  firm  is  in  a  situation  where  all  inputs  are  fixed • Short  run  period-­‐ a  least  one  input  is  fixed • Long  run  peri-­‐all  inputs  are  variable,  nothing  is  fixed Michigan  Firm • Perfect  competition • Many  firms  producing  identical  product • Apple  farm  (firm) ○ 80  acres ○ 35,000  bushels  per  year Uncle  John's   • Fixed  inputs ○ Trees/  land ○ Building ○ Equipment • Variable  inputs ○ Labor • The  production  function  for  apples  on  a  Michigan  farm  can  be  written  like  this: • Q(apples)=f(labor,  fertilizer,  tractor,  time,  number  and  age  of  trees,  etc.) • The  dependent  variable  is  quantity  of  output  (number  of  apples  in  this  case) • The  independent  variables  are  quantities  of  inputs Single  Variable  total  product  curve ○ Labor • The  production  function  for  apples  on  a  Michigan  farm  can  be  written  like  this: • Q(apples)=f(labor,  fertilizer,  tractor,  time,  number  and  age  of  trees,  etc.) • The  dependent  variable  is  quantity  of  output  (number  of  apples  in  this  case) • The  independent  variables  are  quantities  of  inputs Single  Variable  total  product  curve • The  single  varia  otal  product  curveshows  output  as  a  function  of  a  single  variable   input,L  ABOR,  holding  all  other  inputs  constant • Marginal  product  of  labor :  increase  in  output  that  arises  from  an  additional  unit  of   labor Or • The  change  in  output  per  unit  change  in  labor • Marginal  product  is  the  slope  of  the  total  product  curve; ○ Measure  of  labor  productivity Law  of  Diminishing  Marginal  Product • As  the  amount  of  an  input  increases,  all  other  inputs  being  held  constant,  the  marginal   product  of  the  input  will  eventually  decline ○ Total  product  curve  eventually  gets  flatter  as  the  amount  of  the  variable  input   increases • A  short  run phenomenon Class  Exercise • Labor:  amount  of  people • Output:  how  many  MSU's  written  on  board Labor Output Marginal  Product 0 0 1 5 5 2 8 3 3 11 3 4 13 2 Cost  of  Production • General  principle:  If  you  ke  chnologyof  production  (the  production  function   or  total  product  curve),  and  if  you  know  the   pricesof  the  inputs to  production,  then   you  can  find  the  firm's   costsat  any  level  of  output • Put  another  way:  costs  are  determined  by  the  technology  of  production  and  input   prices Total  Cost • Total  costs  =  total  variable  costs  +  total  fixed  costs TC  =  VC  +  FC Total  Variable  Costs • Costs  that  change  as  output  changes • Depends  on:   ○ Labor • The  production  function  for  apples  on  a  Michigan  farm  can  be  written  like  this: • Q(apples)=f(labor,  fertilizer,  tractor,  time,  number  and  age  of  trees,  etc.) • The  dependent  variable  is  quantity  of  output  (number  of  apples  in  this  case) • The  independent  variables  are  quantities  of  inputs Single  Variable  total  product  curve • The  single  varia  otal  product  curveshows  output  as  a  function  of  a  single  variable   input,L  ABOR,  holding  all  other  inputs  constant • Marginal  product  of  labor :  increase  in  output  that  arises  from  an  additional  unit  of   labor Or • The  change  in  output  per  unit  change  in  labor • Marginal  product  is  the  slope  of  the  total  product  curve; ○ Measure  of  labor  productivity Law  of  Diminishing  Marginal  Product • As  the  amount  of  an  input  increases,  all  other  inputs  being  held  constant,  the  marginal   product  of  the  input  will  eventually  decline ○ Total  product  curve  eventually  gets  flatter  as  the  amount  of  the  variable  input   increases • A  short  run phenomenon Class  Exercise • Labor:  amount  of  people • Output:  how  many  MSU's  written  on  board Labor Output Marginal  Product 0 0 1 5 5 2 8 3 3 11 3 4 13 2 Cost  of  Production • General  principle:  If  you  ke  chnologyof  production  (the  production  function   or  total  product  curve),  and  if  you  know  the   pricesof  the  inputs to  production,  then   you  can  find  the  firm's   costsat  any  level  of  output • Put  another  way:  costs  are  determined  by  the  technology  of  production  and  input   prices Total  Cost • Total  costs  =  total  variable  costs  +  total  fixed  costs TC  =  VC  +  FC Total  Variable  Costs • Costs  that  change  as  output  changes • Depends  on:   Total  Cost • Total  costs  =  total  variable  costs  +  total  fixed  costs TC  =  VC  +  FC Total  Variable  Costs • Costs  that  change  as  output  changes • Depends  on:   1. Amount  of  Input  Used ○ Labor  quantity 2. Price  of  Input ○ Wage  rate • Suppose  labor  costs  \$56  per  day • P(l)  =  \$56/day • If  labor  is  the  only  variable  input,  we  can  find  the  total  variable  cost Total  Fixed  Costs • Costs  that  do  not  change  with  output Total  Cost • Total  costs  =  total  variable  costs  +  total  fixed  costs TC  =  VC  +  FC Total  Variable  Costs • Costs  that  change  as  output  changes • Depends  on:   1. Amount  of  Input  Used ○ Labor  quantity 2. Price  of  Input ○ Wage  rate • Suppose  labor  costs  \$56  per  day • P(l)  =  \$56/day • If  labor  is  the  only  variable  input,  we  can  find  the  total  variable  cost Total  Fixed  Costs • Costs  that  do  not  change  with  output

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