ECO100Y1 : Summary notes 2

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12 Sep 2010

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Time periods: very short run: both factors fixed. q. S q: short run: one factor fixed, long run: two inputs vary, very long run: technology varies the function itself varies. Relate to costs of production q q q. Ap = where ap is maximum: when ap is rising, mp is above it, when ap is falling, mp is below it. L: u-shaped cost curves law of diminishing (marginal) return. Nature of costs: accounting costs vs. economic costs: manager"s salary, tr = , tc = including manager"s salary, adjust: , economic : . Profits = : adjust , economic : . Tc where every input paid its opportunity cost. Business making its proper return (normal rate of return) 30. 00: as you produce more, you reduce the loss produce positive quantity, as you produce more, you increase the loss produce nothing. Profit maximizing quantity: rule #2: for max,

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