ECO 1104 Lecture Notes - Lecture 10: The Beer Store, Marginal Cost, Marginal Product
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5 Dec 2017
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Distinction between the fixed costs and the variable costs of production. Variable costs increase with the level of production. Fixed costs remain constant with the level of production. In order to make the transition from the physical productivity to the costs of production, consider the following numerical illustration: Suppose that the going wage for labor (the one variable factor) is /hour. Suppose that the schedule for the marginal product of labor is: first worker = 10 unit/hour: second worker = 10, third worker = 8 fourth worker = 7. Note the pattern the mp of labor is decreasing due to the diminishing mp, while the wage remains constant. This implies diminishing marginal product translates into increasing per unit production costs. The tp and the mp are functions of the level of input of the variable factor, the cost functions are function of the level of output, q. These increases directly with the level of production.
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