ECON101 Chapter Notes - Chapter 11: Average Variable Cost, Marginal Product, Marginal Cost

• School: University of Waterloo
• Department: Economics
• Course: ECON101
• Professor: Robert Park

Document Summary

They must decide how much to produce. How much and what type of capital equipment to use. Firms make many decisions to achieve its main objective: profit maximization. Some decisions are big ones critical to the survival of the firm & irreversible (or very costly to reverse). Some decisions are small ones easily changed, less critical to the survival of the firm, but still influence profit. Biggest decision an entrepreneur makes is in what industry to establish a firm knowledge, interest, profit prospects drives this decision. All decisions can be placed in two time frames: In short-run, firms need to increase its variable fop (usually labour) to produce more output. To increase output in the short run, firm must increase the amount of labour employed. 3 concepts describe the relationship between output and the quantity of labour employed: total product, marginal product, average product. Total product maximum output that a given quantity of labour can be produced.