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Exam 3 Lec 5-6

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by: Karlee Castleberry

Exam 3 Lec 5-6 Econ 2020

Karlee Castleberry
GPA 3.1

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I was not present for lecture 5 for exam 3, so I just typed out the main points from the review sheet. All of lecture 6 is here though!
Principles of Economics: Microeconomics
William M. Finck
Class Notes
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This 4 page Class Notes was uploaded by Karlee Castleberry on Monday March 21, 2016. The Class Notes belongs to Econ 2020 at Auburn University taught by William M. Finck in Spring 2016. Since its upload, it has received 40 views. For similar materials see Principles of Economics: Microeconomics in Business at Auburn University.


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Date Created: 03/21/16
Econ 2020 Exam 3 Lecture 5-6 [definition formula relationships between variables] {lecture 5}  Formulas o Average fixed cost  o Average variable cost  o Average total cost  o Marginal cost (2)  o Marginal product of labor o  Total product: Q = ΣL   Concepts o Normal profit o Short run vs. long run o Fixed costs vs. variable costs o Law of Diminishing Marginal Returns  o Factors that shift cost curves   Graphs o MC, ATC, and AVC  o Shifts of LR cost curves   Terms o Plant capacity o Marginal product of labor o Economies of scale/increasing returns to scale o Diseconomies of scale/decreasing  o returns to scale  {lecture 6} Q TFC TVC TC MC AFC AVC ATC 0 120 0 120 ---- ---- ---- ---- 1 120 60 180 60 120 60 180 2 120 90 210 30 60 45 105 3 120 150 270 60 40 50 90 4 120 240 360 90 30 60 90 5 120 380 500 140 24 76 100  Law of diminishing marginal returns o As successive units of a variable resource are added to a fixed resource, the marginal product of the variable resource eventually decreases  Keep adding more workers to one piece of equipment, eventually yield will get smaller and smaller bc you’re running out of room o LDMR explains why the short run cost curves eventually increase as output increases o Only applies in short run (no fixed resources in long run) o Formulas:  Marginal product of labor- the additional output produced by one more unit of labor;LMP = ∆Q / ∆L  Total product = Q = ∑ ML  MC = Wage / MP L Capital Labor Wage Q MP L MC = 2 W/MP L 1 0 $5 0 ----- ----- 1 1 $5 10 10 $.50 1 2 $5 30 20 $.25 1 3 $5 40 10 $.50 1 4 $5 44 4 $1.25 1 5 $5 46 2 $2.50 Already there We added  Long run costs s q o LRATC o (Economies of scale) o LRMC o Economies of scale/increasing returns to scale - as q rises, LRATC falls o Diseconomies of scale o Diseconomies of scale/decreasing returns to scale - as q rises, LRATC rises  Change in LR costs s q  Decrease in costs 3  Increase in costs  Factors that shift long run cost curves o 1. Input prices- input prices and cost curves move together o 2. Regulation/taxes- taxes and costs move together o 3. Technology- as technology improves, costs fall 4


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