ECO204Y5 Lecture Notes - Lecture 15: Historical Cost, Negative Number, Opportunity Cost
Tophat
Q: In the short-run, firms are able to increase output only by increasing their hiring of workers, where each worker is
paid the same wage but contributes a different level of MPL to total output.
Ans: True
Recall: from last class
How do we incorporate diminishing MPL?
- MPL = additional output produced by 1 extra worker =
o Note that
=
o Substitute
=
into the MC equation:
▪ MC =
=
→ provides intuition for the shape of the MC curve
• For low levels of output, you hire more workers and MPL rises (↑) because of
specialization
• For high levels of output, you hire more workers and MPL falls (↓)
▪ Equation suggests MC will initially fall when output is low, but MC will rise as MPL ↑
Cost Curve (attached note given)
- Positively shaped cost function
- Vertical difference between TC and TVC is FC {TC and TVC are not parallel}
o Recall: TC = FC + VC
- Fo TC ad TVC Iitiall, e’e goig to hae e steep slope but it turns flatter along the way
- AFC ill stat at 50 ad ill keep deeasig util it’s alost eual to zeo; ut it’ll ee eual zeo o a
negative number
- min MC occurs when the TC and TVC are almost horizontal
2016/11/03 → Lecture #15
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Q: in the short-run, firms are able to increase output only by increasing their hiring of workers, where each worker is paid the same wage but contributes a different level of mpl to total output. How do we incorporate diminishing mpl? (cid:1839)= (cid:1869) = (cid:1838)(cid:1869) . Mpl = additional output produced by 1 extra worker = (cid:1869)(cid:1838)=1: note that 1(cid:1839)(cid:1838) = (cid:1838)(cid:1869) into the mc equation: substitute 1(cid:1839)(cid:1838, mc = (cid:1838)(cid:1869) = (cid:1839)(cid:1838) Vertical difference between tc and tvc is fc {tc and tvc are not parallel: recall: tc = fc + vc. Fo(cid:396) tc a(cid:374)d tvc i(cid:374)itiall(cid:455), (cid:449)e"(cid:396)e goi(cid:374)g to ha(cid:448)e (cid:448)e(cid:396)(cid:455) steep slope but it turns flatter along the way. Afc (cid:449)ill sta(cid:396)t at 50 a(cid:374)d (cid:449)ill keep de(cid:272)(cid:396)easi(cid:374)g u(cid:374)til it"s al(cid:373)ost e(cid:395)ual to ze(cid:396)o; (cid:271)ut it"ll (cid:374)e(cid:448)e(cid:396) e(cid:395)ual ze(cid:396)o o(cid:396) a negative number. Min mc occurs when the tc and tvc are almost horizontal.
