ECON 201 Lecture Notes - Lecture 16: Fixed Cost, Takers, Market Power
ECON 201 – Lecture 16 – Chapters 13 and 21
*All charts and graphs based off or replicated by Joel Han in class unless stated otherwise
Short and Long Run Costs
Go back to example of farmer growing corn
oFixed Resource: land
oVariable Resource: workers
Farmer can eventually buy more land or sell off land, but this takes time
oShort run: At least one fixed factor
oLong run: No fixed factors (all factors are variable)
Suppose farmer can only have one of 3 farms: small, medium, large
oIn short run, farmer stuck with one of these farm sizes
oIn long run, can choose any farm size
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Realistically there are many different farm sizes…
oHere is a typical LRATC curve (Long-run Average Total Cost)
oLRATC should always be lower than SRATC
oRegion 1: Economies of Scale (Scales all inputs/resources)
oRegion 2: Constant returns to Scale
oRegion 3: Diseconomies of Scale
oLRATC (Long-run Average Total Cost) = LRAVC (Long-run Average Variable Cost) =
LRAC (Long-run Average Cost)
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Efficient Scale
oFirm produces most efficiently when their ATC is lowest
oEfficient Scale – Quantity which minimizes ATC
Firms in Competitive Markets
Profit = Total Revenue (Depends on market structure) – Total Cost (Depends on firm’s
technology – previous chapter)
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Econ 201 lecture 16 chapters 13 and 21. *all charts and graphs based off or replicated by joel han in class unless stated otherwise. Go back to example of farmer growing corn: fixed resource: land, variable resource: workers. Farmer can eventually buy more land or sell off land, but this takes time: short run: at least one fixed factor, long run: no fixed factors (all factors are variable) Suppose farmer can only have one of 3 farms: small, medium, large: in short run, farmer stuck with one of these farm sizes, in long run, can choose any farm size. Efficient scale: firm produces most efficiently when their atc is lowest, efficient scale quantity which minimizes atc. Profit = total revenue (depends on market structure) total cost (depends on firm"s technology previous chapter) Buying and selling same product: no barriers to entry. Firms can freely enter or exit the market.
