Pre Lecture warm-up
If TC = 1000 for 3 units
What is ATC for three units?
If AVC = 20 for 4 units
What is TVC for four units?
If TC for 0 units = 60
What are fixed costs?
1000 / 3
4 x 20
What if TC = 600 + 20Q what are fixed costs?
When Q = 0, total cost = 600
MC often goes down first, and then begins to rise
Goes down when people start to specialize, productivity goes up
It rises as you run into scarcities of space, other resources
The difference between AVC and ATC converges as we produce more
The difference between AVC and ATC is AFC
At first (looking at ATC), it becomes cheaper and cheaper to produce
Then after a point it gets more and more expensive to produce
The cheaper section – Increasing returns to scale
The more expensive section – decreasing returns to scale In the long run, all inputs become variable
What would happen if you invested in cost saving technology which has high initial costs, but
saves you money?
Your average total cost goes from having a low fixed cost and higher