Class Notes (922,826)
CA (542,992)
UTSG (45,883)
ECO (1,646)
ECO101H1 (575)
Jack Carr (83)
Lecture 13

Lecture 13-Production Function

3 Pages
144 Views

Department
Economics
Course Code
ECO101H1
Professor
Jack Carr

This preview shows page 1. Sign up to view the full 3 pages of the document.
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
www.notesolution.com

Loved by over 2.2 million students

Over 90% improved by at least one letter grade.

Leah — University of Toronto

OneClass has been such a huge help in my studies at UofT especially since I am a transfer student. OneClass is the study buddy I never had before and definitely gives me the extra push to get from a B to an A!

Leah — University of Toronto
Saarim — University of Michigan

Balancing social life With academics can be difficult, that is why I'm so glad that OneClass is out there where I can find the top notes for all of my classes. Now I can be the all-star student I want to be.

Saarim — University of Michigan
Jenna — University of Wisconsin

As a college student living on a college budget, I love how easy it is to earn gift cards just by submitting my notes.

Jenna — University of Wisconsin
Anne — University of California

OneClass has allowed me to catch up with my most difficult course! #lifesaver

Anne — University of California
Description
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 www.notesolution.com Economies of Scale: Specialization (for example) Diseconomies of Scale: Organization & Co-ordination Cost Long-run Average Total Cost Curve: 1. Labour, capital both vary Æ Law of Diminishing Returns does not apply 2. In the long-run, there are no fixed costs 3. Shows lowest ATC for producing each level of output (efficient production) 4. )LUP¶V/RQJ-run ATC may at first exhibit economies of scale and later diseconomies of scale (see text Figure 13.7) Opportunity Cost and the Measurement of Economic Profit Economic Profit: Total Revenue ± Opportunity Cost Opportunity Cost Explicit: Input cost that require an outlay of money by the firm (eg. Wages paid to employees, cost of raw materials, etc.) Implicit: Input costs that do not require an outlay by the firm (eg. Opportunity FRVWRIRZQHU¶VLQYHVWHGFDSLWDOQRUPDOUDWHRISURILWRSSRUWXQLW\FRVWRIRZQHU¶VWLPH Accounting Profit: total revenue minus total explicit costs Economic Profit: total revenue minus total (explicit + implicit) costs ATC Economies of Scale The property whereby long-run average total cost falls as the quantity of output increases Q www.notesolution.com Example: An individual buys a business for $400,000. She invests $200,000 and borrows $200,000. Total Revenue: $100,000 Opportunity Cost: Explicit Wages $40,000 Raw Material $25,000 Bank Interest (at 10%) $20,000 Implicit 2SSRUWXQLW\FRVWRIRZQHU¶VIXQGV $20,000 (at 10%) Economic Profit: ($5,000) Economic Profit: negative => firm should exit in long run Accounting Profit: $15,000 => does not provide signal regarding entry/exit www.notesolution.comth Thursday, October 29 , 2009. Production Function L72843J-run Average Total Cost Schedule: 1. ,38K4797:3*2:89KL702470Z47N07894L3.70,804:95:9 ,Z41L2L3L8KL3J #09:73,55OL08 2. In long run, GM can build more assembly paints as well as hire more workers 2.1 ,Z41L2L3L8KL3J#09:738408not apply 2.2 MP does not necessarily fall after some point MC does not necessarily rise 3. Suppose firm doubles all inputs a) Output doubles (constant returns to scale) ATC unchanged b) Output lessthan doubles (diseconomies of scales) ATC increases c) Output more than doubles (economies of scale) ATC falls Long-run Average Total Cost Curve ATC
More Less
Unlock Document


Only page 1 are available for preview. Some parts have been intentionally blurred.

Unlock Document
You're Reading a Preview

Unlock to view full version

Unlock Document

Log In


OR

Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit