ECON-UA 2 Lecture Notes - Lecture 6: Average Variable Cost, Marginal Cost, Diminishing Returns
12 Sep 2016
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Document Summary
Ultimate goal of a rm: maximise pro ts ( ) Profits = total sales revenue - total cost of production. Production | process of combining inputs to make goods/services (labour,land,capital,entrepreneurship) A firm"s technology | a method available for combining inputs to produce output if there are different methods of producing the same level of output, the firm will choose the cheaper one: cost minimisation inputs: capital & labour. Production function (pf) | shows max quantity with the given input combination that a firm can produce in a given time. Pf of good x: qx = f(l,k) (function describes technology, can be linear or nonlinear function) linear: q=2l+k non linear: q=2lk. Long run | time period which all inputs can vary (firm is not constrained in its ability to change the input mix) Short run | time period which the firm cannot change at least 1 input (firm is stuck with the quantity of at least 1 input)
