MGEB02H3 Chapter Notes - Chapter 7: Sunk Costs, Isocost, Capital Expenditure

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Economic cost versus accounting cost: accounting cost actual expenses plus depreciation charges for capital equipment, economic cost cost to be a firm utilizing economic resources in production, including opportunity cost. Opportunity cost: opportunity cost cost associated with opportunities that are forgone when a firm"s resources are not put to their best alternative use. Marginal cost (mc: marginal cost increase in cost resulting from the production of one extra unit of output, mc = vc/ q = tc/ q. The determinants of short-run cost: fixed wage, w, mc = vc/ q. Mc = w/mpl: high mp means that labour requirement is low, as is the marginal cost - mp and mc run parallel. Diminishing marginal returns and marginal cost: mpl declines as the quantity of labour employed increases, mc will increase as output increases. The shapes of the cost curve: fixed cost = distance between tc curve and vc curve curve, mc crosses avc and atc at their min points.

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