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Economics 1021A/B Study Guide - Average Variable Cost, Fixed Cost, Marginal Product


Department
Economics
Course Code
ECON 1021A/B
Professor
Jeannie Gillmore

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Chapter 11 Class Notes
Every firm has one goal
To maximize profit
- by minimizing costs
Short run
At least one factor of production is fixed
Long run
In which all factors of production can be changed
Sunk cost
Marginal product = change in total product when we increase labour by 1**
Always plot at halfway point
Average Product = change in total / change in labour
When marginal product is above average product average increases
When marginal product is below average product average falls
At max average product marginal product = average product intersect
TC = TVC + TFC (total variable cost + total fix cost)
TVC increases as output increases as TFC remains constant, TC increases as
output increases
TC/Q = TVC/Q + TFC/Q (Q = output)
Then we get ATC = AVC + AFC (average total cost = average variable cost + average fix
cost)
Memorize marginal costs and average costs
Avg fixed cost downward sloping curve AFC = TFC (constant)/Q (increasing)
have costs regardless of producing or not as Q increases curve slopes down
Avg variable cost U shaped law of diminishing returns
Avg total cost = sum of AFC + AVC U shaped b/c upward part of avc curve bigger than
download sloping AFC curve
Marginal cost increase in TC that arises from producing one more unit
Marginal cost < AVC AVC is decreasing
MC > AVC AVC is increasing
MC + AVC curves intersect at min AVC
MC < ATC ATC is decreasing
MC > ATC ATC is increasing
MC + ATC curves intersect at min ATC
No relationship b/w marginal cost and AFC b/c MFC does not change
Min of ATC to the right of min of AVC occurs at greater quan than AVC min
b/c b/w min AVC and ATC downward effect of AFC curve is greater than upward
effect of the AVC curve
ATC = AVC + AFC AFC is getting smaller vertical distance b/w avc and atc = afc
Avg product increase AVC decreases
Avg product decrease AVC increase
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