ECON 1116 Lecture Notes - Lecture 8: Marginal Cost, Marginal Revenue, Fixed Cost

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ECON 1116 Lecture 8: THE COSTS OF PRODUCTION
Example
A firm can choose from three factory sizes: S, M, & L
The firm can change to a different factory size in the long run but not in the short run
Long Range Average Total Cost Curve with 3 Factory sizes
Qa Qb Q
To produce less than Qa firm will choose size s in the long run
To produce between Qa and Qb firm will choose size m in the long run
To produce more than Qb firm will choose size L in the long run
If the company wants to produce only Qa and choses a medium sized factory the average
cost increases
Qa
Always produce where the marginal revenue equals the marginal cost
In the case of this graph you produce at point B
Averag
e Total
Cost ATCM
ATCSATCL
ATC
Marginal Cost
Marginal Revenue
B
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Document Summary

Econ 1116 lecture 8: the costs of production. A firm can choose from three factory sizes: s, m, & l. The firm can change to a different factory size in the long run but not in the short run. Long range average total cost curve with 3 factory sizes. To produce less than qa firm will choose size s in the long run. To produce between qa and qb firm will choose size m in the long run. To produce more than qb firm will choose size l in the long run. If the company wants to produce only qa and choses a medium sized factory the average cost increases. Always produce where the marginal revenue equals the marginal cost. In the case of this graph you produce at point b. Marginal revenue the change in total revenue from selling one more unit = (change in. Sunk cost a cost that has already been committed and cannot be recovered.

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