ECON 10a Lecture Notes - Lecture 13: Fixed Cost, Marginal Cost, Variable Cost
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5 Nov 2016
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13: the costs of production: short run & long run supply, short run: summary. Firms in the short run do not often change physical capital in the short term, they are generally fixed. Firms in the short run will have variable in materials and workers. A short run relationship is between the amount of labor + quantity of output: marginal product (mp) is how much q rises when we add one more unit of labor. Fixed cost: these costs are a fixed number regardless of q, thusly, these costs cannot be avoided by shutting down (q can be 0, and the costs will still remain, ex: interest, rent. Variable cost: these costs vary with q, these rise as q rises, they can be avoided by shutting down (when q is 0, variable costs are 0, ex: cost of materials, wages. Average fixed cost (afc: as quantity rises average fixed costs fall, at large q, afc is practically sh.
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Use the following information on a hypothetical short-run production function to answer questions A-C.
The price of labor is $20 per day.
Ten units of capital are used each day, regardless of output level.
The price of capital is $50 per unit.
(A). Calculate the marginal product (MP) and average variable product (AP) of each unit of labor input.
(B). Calculate total (TC), average total (ATC), average variable (AVC), and marginal costs (MC).
(C). Can you tell where diminishing marginal returns sets in?
Labor (L) | Output (Q) | MP | AP | TC | ATC | AVC | MC |
5 | 120 | -- | -- | ||||
6 | 140 | ||||||
7 | 155 | ||||||
8 | 165 | ||||||
9 | 168 |