Class Notes (838,037)
Canada (510,646)
Economics (1,590)
ECO101H1 (575)

L12 - Production and Cost Schedules - 10212013.pdf

4 Pages
Unlock Document

James Pesando

Key question: how do firms maximize profits? First step: understand firms' cost schedules Production Function Production function: Relates output to quantity of inputs (capital, labour) Short - run : one input (capital) is fixed, while one input (labour) can vary Long - run : All inputs (capital, labour) can vary Example General Motors Short run: GM can vary amount of labour (overtime, lay-offs) GM cannot vary number of plants (capital) Long run: GM can vary number of plants and amount of labour Product Schedules (Short - Run) (TP) Total Product Total output, given labour input (MP) Marginal Product* Increase in total output divided by increase in labour input Law of Diminishing Returns: the marginal product of a variable input, in the presence of a fixed input, eventually diminishes Output Marginal Labour Average Product (Total Product) Product 0 0 1 4 4 4.00 2 10 6 5.00 3 13 3 4.33 4 15 2 3.75 5 16 1 3.20 Note: if MP is above AP, AP is rising; if MP is less than AP, AP is falling Law of Diminishing Returns: Intuition Fixed input : land (100 acres) Variable input : labour (farm workers) As number of farm workers increases, the amount of land available to each worker falls, and Marginal Product of additional farm workers eventually falls Measures of a Firm's Costs of Production Total Cost (TC): Total of all costs (TC = TFC + TVC) Total Fixed Cost (TFC): Total Cost of fixed input Total Variable Cost (TVC): Total Cost of variable input ** Marginal Cost (MC): Increase in total cost / increase in output (MC = change in TC / change in Q) ** Average Total Cost (ATC): Average cost per unit of output (ATC = TC / Q) Average Variable Cost (AVC): Average variable cost per unit of output (TVC / Q) Average Fixed Cost (AFC): Average fixed cost per unit of output (TFC / Q) Note: TFC "Sunk Costs" Wage rate: $10 Total Cost Marginal Cost Average Costs ($) ($ per unit) ($ per unit) (1)
More Less

Related notes for ECO101H1

Log In


Join OneClass

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

Sign up

Join to view


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.