ECON 1 Lecture Notes - Lecture 6: Average Variable Cost, Marginal Cost, Competitive Equilibrium
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Equity and efficiency: competitive equilibrium is efficient, but it may not be equitable, example: compare the apple market experiment with the real market: Experimental market: buy and sell only one unit; one point each time. Real market: have both discrete units and continuous units, depending on what king of service or product; consumers can buy as often as they want; supply is produced, but not given. Cost and supply: profit = revenue - cost, revenue = price x quantity, when quantity rises, both revenue and cost rises, total cost = fixed cost + variable cost. Initially, average variable cost may fall as output rises (specialization). Eventually, average variable cost rises as output rise (fixed factor). Marginal cost: definition: the increase in cost from one more unit of output. If marginal cost > average cost, average cost is rising. If marginal cost < average cost, average cost is falling.
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