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## Econ Lecture 11

by: Samantha Shea

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0

5

# Econ Lecture 11 ECON 201

Samantha Shea
MSU

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These notes cover what was talked about in class on Wednesday, October 12th.
COURSE
Micro Economics
PROF.
Professor Liedholm
TYPE
Class Notes
PAGES
5
WORDS
CONCEPTS
Microeconomics, Lecture Notes
KARMA
25 ?

## Popular in Microeconomics

This 5 page Class Notes was uploaded by Samantha Shea on Wednesday October 12, 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 3 views. For similar materials see Micro Economics in Microeconomics at Michigan State University.

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Date Created: 10/12/16
Lecture  11 Wednesday,  October  12,  2016 12:34  PM Coming  Attractions • No  class  on  Wednesday,  October  19 Last  Time • Introduced  you  to  Uncle  John's  Apple  Firm  (farm) • Production  Function • Marginal  Product • Law  of  Diminishing  Product • Link  to  Costs  of  Production Total  Cost  Summary • Total  cost  =  fixed  cost  +  total  variable  cost • TC  =  FC  +  TVC • Total  variable  cost :  costs  that  change  as  output  changes • Depends  on:   1. Amount  of  input  used § Labor  quantity 2. Price  of  Input § Wage  rate • Total  fixed  costs :  costs  that  do  not  change  with  output There  are  2  ways  to  depict  a  firm's  cost: 1. Total  cost  curves 2. Unit  (average  and  marginal)  cost  curves ○ Businesses  focus  on  the  costs  per  unit  of  output ○ Several  unit  costs  to  consider Unit  Costs • Average  fixed  and  average  variable  costs • Marginal  cost • Shapes  and  relationships  of  curves Average  fixed  cost • AFC  =  FC/Q Average  variable  cost • AVC  =  VC/Q Average  Total  Cost • TC/Q Alternate  method  of  finding  average  (total)  cost Lecture  11 Wednesday,  October  12,  2016 12:34  PM Coming  Attractions • No  class  on  Wednesday,  October  19 Last  Time • Introduced  you  to  Uncle  John's  Apple  Firm  (farm) • Production  Function • Marginal  Product • Law  of  Diminishing  Product • Link  to  Costs  of  Production Total  Cost  Summary • Total  cost  =  fixed  cost  +  total  variable  cost • TC  =  FC  +  TVC • Total  variable  cost :  costs  that  change  as  output  changes • Depends  on:   1. Amount  of  input  used § Labor  quantity 2. Price  of  Input § Wage  rate • Total  fixed  costs :  costs  that  do  not  change  with  output There  are  2  ways  to  depict  a  firm's  cost: 1. Total  cost  curves 2. Unit  (average  and  marginal)  cost  curves ○ Businesses  focus  on  the  costs  per  unit  of  output ○ Several  unit  costs  to  consider Unit  Costs • Average  fixed  and  average  variable  costs • Marginal  cost • Shapes  and  relationships  of  curves Average  fixed  cost • AFC  =  FC/Q Average  variable  cost • AVC  =  VC/Q Average  Total  Cost • TC/Q Alternate  method  of  finding  average  (total)  cost • AFC  =  FC/Q Average  variable  cost • AVC  =  VC/Q Average  Total  Cost • TC/Q Alternate  method  of  finding  average  (total)  cost TC  =  FC  +  VC TC/Q  =  FC/Q  +  VC/Q AC  =  AFC  +  AVC Marginal  Cost • Marginal  cost:  the  increase  in  total  cost  that  arises  from  an  extra  unit  of  production                r                                          • The  change  in  total  cost  per  unit  change  in  output • The  slope  of  the  total  cost  curve How  are  fixed  costs  and  marginal  costs  related? • TC  =  FC  +  VC • No  relationship • MC  could  also  be  shown  as   Shape  of  the  average  (total)  cost  curve  short  run • Bottom  of  the  ATC   • Efficient  scale  of  the  firm Shape  of  the  marginal  cost  curve • Looks  like  the  shape  of  a  cobra • Remember  it  by  say  "My  Cobra"   MP  and  MC • Wage  rate/  MP        =  MC • MC  goes  up  when  MP      goes  down • INVERSE Relationship  of  MC  and  AVC  and  ATC • If  MC  >  ATC  then  ATC  rising If  MC  >  AVC  then  AVC  rising • If  MC  <  ATC  then  ATC  declining If  MC  <  AVC  then  AVC  declining • AFC  =  FC/Q Average  variable  cost • AVC  =  VC/Q Average  Total  Cost • TC/Q Alternate  method  of  finding  average  (total)  cost TC  =  FC  +  VC TC/Q  =  FC/Q  +  VC/Q AC  =  AFC  +  AVC Marginal  Cost • Marginal  cost:  the  increase  in  total  cost  that  arises  from  an  extra  unit  of  production                r                                          • The  change  in  total  cost  per  unit  change  in  output • The  slope  of  the  total  cost  curve How  are  fixed  costs  and  marginal  costs  related? • TC  =  FC  +  VC • No  relationship • MC  could  also  be  shown  as   Shape  of  the  average  (total)  cost  curve  short  run • Bottom  of  the  ATC   • Efficient  scale  of  the  firm Shape  of  the  marginal  cost  curve • Looks  like  the  shape  of  a  cobra • Remember  it  by  say  "My  Cobra"   MP  and  MC • Wage  rate/  MP        =  MC • MC  goes  up  when  MP      goes  down • INVERSE Relationship  of  MC  and  AVC  and  ATC • If  MC  >  ATC  then  ATC  rising If  MC  >  AVC  then  AVC  rising • If  MC  <  ATC  then  ATC  declining If  MC  <  AVC  then  AVC  declining • INVERSE Relationship  of  MC  and  AVC  and  ATC • If  MC  >  ATC  then  ATC  rising If  MC  >  AVC  then  AVC  rising • If  MC  <  ATC  then  ATC  declining If  MC  <  AVC  then  AVC  declining • If  MC  =  ATC  then  ATC  minimum If  MC  =  AVC  then  AVC  minimum What  about  AFC? • NO  RELATION  TO  MARGINAL  COST • Average  fixed  costs  continues  to  go  down • ALWAYS  declines  with  increase  in  output

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