ECON 230D1 Lecture Notes - Lecture 5: Average Variable Cost, Sunk Costs, Isocost

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Opportunity cost: value of best alternative use of the resource - there is no such thing as a free lunch. Sunk costs sunk cost - a past expenditure that cannot be recovered: not relevant to a manager when deciding how much to produce now because the item cannot be resold on the market. If an expenditure is sunk, it is not an opportunity cost. Marginal cost - the a(cid:373)ou(cid:374)t (cid:271)(cid:455) (cid:449)hi(cid:272)h a fir(cid:373)"s (cid:272)ost (cid:272)ha(cid:374)ges if the fir(cid:373) produ(cid:272)ed o(cid:374)e (cid:373)ore u(cid:374)it of output (cid:1839)= = . Long-run costs: fixed costs are avoidable in the long-run. In the long-run, f=0: as a result, the long-run total cost equals: tc=vc. Isocost line all the combinations of inputs that require the same total expenditure: we get the isocost equation by setting the costs at a particular level and then solving for r= rental price memorize it!! K (cid:1837)= = (cid:1838) (this function is in the long-run)

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