Production Function, Monopoly Firm, International Trade and..
Production Function, Monopoly Firm, International Trade and Open Economy

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School
University of Toronto Scarborough
Department
Economics for Management Studies
Course
MGEA02H3
Professor
all
Semester
Summer

Description
Topic 6 Production FunctionKnowledge Summary 1 Relevant production functionsqF K LTC F q 2 Relevant terms and formulasTotal cost TCF qTVCTFCTotal variable cost TVCprice of labor x LTotal fixed cost TFCprice of capital x KAverage cost ACTCqAverage variable cost AVCTVCqAverage fixed cost AFCTFCqMarginal cost MCdTCdqMarginal productivity of labor MPLdqdLAverage productivity of labor APLqL 3 Short term equilibriumIn the short term one significant assumption is that no firm will enter the market Also as long as the price is greater than the short run shut down price no firm will exit the marketShort run equilibrium depends on the intersection of the demand curve and short run supply curve which is Q marketn x q which n is the number of firms in the short run and q is the production of each individual firmProfits in the short run can be both positive or negativeIf the short run profit is positive firms would have the incentive to enter the market in the long run in which situation n in the long runn in the short run Q market will increase and thus price will drop to the long run equilibriumIf the short run profit is negative firms would exit the market in the long run in which situation n in the long run n in the short run Q market will decrease and thus price will increase to the long run equilibriumShort term shut down price will be the minAVC ie it is the price at the intersection of MC and AVC 4 Long term equilibriumIn the long run equilibrium price will be the minimum average cost minACIt is the intersection of MC and AC curveIn the long run n is the number of firms that will drive the P to minACIn the long run profit for each individual firm will be 0Thus the long run supply curve will be a horizontal line that PminAC5 Graphs QF K L L APLL MPL
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