Economics 1021A/B Lecture Notes - Average Cost, Average Variable Cost, Sunk Costs

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: Michael Parkin

Document Summary

The firm makes many decisions to achieve its main objective: profit maximization. Some decisions are critical to the survival of the firm. Some decisions are irreversible (or very costly to reverse). Other decisions are easily reversed and are less critical to the survival of the firm, but still influence profit. All decisions can be placed in two time frames: The short run is a time frame in which the quantity of one or more resources used in production is fixed. For most firms, the capital, called the firm"s plant, is fixed in the short run. Other resources used by the firm (such as labour, raw materials, and energy) can be changed in the short run: short-run decisions are easily reversed. The long run is a time frame in which the quantities of all resources including the plant size can be varied: long-run decisions are not easily reversed.