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econpart6 Notes.docx

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ECON 1000
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Chapter 11Decision Time FramesPeople who operate firms make many decisions and all of their decisions are aimed at achieving one goal maximum attainable profitDecisions about the quantity to produce and the price to charge depends on the type of market in which the firm operates Perfect competition monopolistic competition oligopoly monopoly all confront the firm with their own special problems Decisions about how to produce a given output do not depend on the type of market in which the firm operates All types of firms in all types of markets make similar decisions about how to produce The action that a firm can take to influence the relationship between output and cost depends on how soon the firm wants to actA firm that plans to change its output rate tomorrow has fewer options than one that plans to change its output rate six months from now To study the relationship between a firms output decision and its costs we distinguish between two decision time framesThe short run Is a time frame in which the quantity of at least one factor of production is fixedFor most firms capital land and entrepreneurship are fixed factors of production and labor is the variable factor of production The fixed factors of production are called firms plant In the short run a firms plant is fixed Shortrun decisions are easily reversed The firm can change its output in the short run by changing the quantity of labor it employs The long run is a time frame in which the quantities of all factors of production can be varied That is long run is a period in which the firm can change its plantLongrun decisions are not easily reversed Once a plant decisions is made the firm usually must live with it for some time To emphasize this fact we call the past expenditure on a plant that has no resale value a sunk cost Sunk cost is irrelevant to the firms current decisions The only costs that influence its current decisions are the shortrun cost of changing its labor inputs and the longrun cost of changing its plant ShortRun Technology Constraint
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