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Lecture: Output and Cost

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University of Guelph
ECON 1050

Lecture 16 ECON1050 Page 1 MICROECONOMICS Output and CostIntroductionfirms must make decisions o how much production o how many employees o what type and how much capital equipment to useDecision Time Framesprofit maximization main goal of firmsA Short Run Decisionsshort run time frame in which the quantity of one or more resources used in production is fixedplant firm capital o usually fixed in the short run o other resources used by the firm labour raw materials energy can vary in the short runshort run decisions are easily reversedB Long Run Decisionslong run time frame in which the quantities of all resources can be varied o includes plant sizenot easily reversedsunk cost cost incurred by the firm that cannot be changed o example plantno resale value o irrelevant to current decisions as no current decision will change this costShort Run Technology Constraintto increase output in the short run firm must increase labour employedrelationship between output and quantity of labour employed o total product total output produced in a given periodlabourTP o marginal product change in total product resulting from a oneunit increase in the quantity of labour employedall other inputs remain the samelabourMP initially but MP eventually o average product total product per unit of labour employedlabourAP initially but AP eventually
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