ECN 104 Lecture Notes - Lecture 10: Profit Maximization, Taipei Metro, Oligopoly

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13 Oct 2016
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Introductory to microeconomics (week 10) (the firm and costs of production perfect competition) Mc: reflects the law of diminishing returns. If the price of the variable input remains constant, increasing marginal returns will be reflected in a declining marginal cost and diminishing marginal returns in a rising marginal cost. Mc intersects atc and avc at minimum points. Avd and atc and mc shift up. Curve shifts depend on whether technology affects fc, vc, or both. All inputs, and therefore all costs, are variable in the long run. For every plant capacity size, there is a short-run atc curve. Find the combination of inputs which ca minimize cost (maximize output), given constant technology and input prices. The long run atc curve is u-shaped. Increasing plant sizes will lead to lower unit costs but beyond some point successifvely larger plants will mean higher average total costs. Not the result of rising factor prices of the law of diminishing returns.

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