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Lecture 6

Lecture 6, Ch 8-Behind the Supply Curve: Inputs and Costs

5 Pages

Course Code
BUSI 2050U
Ashfakuddin Rubel

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Heavily weighted on mid term Asad Mansoor 100516945 Ch 8-Behind the Supply Curve: Input and Costs  Ch 8 key concepts o Production function o Diminishing returns to inputs o The various types of costs o Marginal and average costs o Short run vs. long run o Increasing returns to scale  Production Function – relation b/n inputs used and output produced o Fixed input- quantity of input remains constant for a period of time o Var. Input- quantity of input fluctuates  Input and Output o Long run- Period of time in which all inputs can be varied o Short run-Period in which at least one input is fixed  EG: overtime, a field worker will be so overwhelmed that his marg. Product will be lower than the prev. worker  Marg. Product first rises as more workers are hired; then declines o Total Product Curve- Shows how outputs depends on fixed input  Production Func. And TP Curve o The connection between inputs and output is + but not constant: marg. Product of labour changes along the pro. Func.  Marg. Product of Labour o Marg. Product- The increase or decrease in the total cost of a production run for making one additional unit of an item. o MPL = = o MPL = change in output produced by 1 additional unit of labour o MPL-/\ in quan. Of output when u /\ the quan. Of input by 1 unit  Explain: extra hour of labour, and additional week or a person-year?  Answer: doesn’t matter, as long as it is constant  Total Product(TPL), Marginal Product(MPL) and Fixed Input o More land(fixed input)=worker produces more. Shifts up in TPL o MPL/worker is higher when farm is larger. Shifts up in MPL  Prod. Func. To Cost Curves o Fixed cost not dependant on quan. Of output. So, its cost of fixed input o Variable cost dependant on quan. Of output. So, it’s the cost of var. input Heavily weighted on mid term Asad Mansoor 100516945  Total Cost Curve(TCC) o Total cost- prod. A given quan. Of output is sum of fixed cost and var. cost of prod. That quant. Of output o TC = FC + VC o TCC becomes steeper as more output is produced, b/c of dim. Returns  2 Ke
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