Lecture 13-Production Function

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1 Aug 2010
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Thursday, October 29th, 2009. Production Function
)LUP¶V/RQJ-run Average Total Cost Schedule:
1. ,QVKRUWUXQ*0PXVWKLUHPRUHZRUNHUVWRLQFUHDVHRXWSXW³/DZRI'LPLQLVKLQJ
5HWXUQ´DSSOLHV
2. In long run, GM can build more assembly paints as well as hire more workers
2.1 ³/DZRI'LPLQLVKLQJ5HWXUQV´GRHVnot apply
2.2 MP does not necessarily fall after some point Æ MC does not necessarily rise
3. Suppose firm doubles all inputs
a) Output doubles (constant returns to scale) Æ ATC unchanged
b) Output less than doubles (diseconomies of scales) Æ ATC increases
c) Output more than doubles (economies of scale) Æ ATC falls
Long-run Average Total Cost Curve
ATC
Constant Returns to Scale
The property whereby long-run
average total cost stays the same
as the quantity of output changes
Q
ATC
Diseconomies of Scale
The property whereby long-run
average total cost rises as the
quantity of output increases
Q
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