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Chapter 7

Introductory Microeconomic Analysis and Policy Chapter 7 Notes

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Department
Economics
Course
ECON 102
Professor
All Professors
Semester
Fall

Description
Chapter 7 Costs Ingredients-$20000, variable cost, explicit cost Forgone Salary -$50000, Implicit, Mostly fixed Hourly Wages -$48000, Explicit, Variable cost Lease Payments -$24000, fixed cost, explicit cost Forgone Earned Interest -$5000, Implicit, Fixed or Variable Economic Depreciation -$10000, Implicit, Variable or fixed Utilities-$6000, Variable cost, Explicit Interest Payments made on ovens-$10000, Fixed or variable, Explicit Production Function- Relationship between the inputs employed by a firm and the maximum output it can produce with those inputs Represents the firm technology Quantity Quantity Output Cost Cost Total ATC MPL MC AFC AVC Ovens Quantity Ovens Workers Cost Workers (TC/Output) (Fixed) (Fixed) (Variable) (Variable) 0 2 0 800 0 800 0 0 0 0 0 1 2 200 800 650 1450 7.25 200 3.25 4.00 3.25 2 2 450 800 1300 2100 4.67 250 2.60 1.78 2.89 3 2 550 800 1950 2750 5 100 6.50 1.45 3.54 4 2 600 800 2600 3400 5.67 50 13.00 1.33 4.33 5 2 625 800 3250 4050 6.48 25 26.00 1.28 5.2 6 2 640 800 3900 4700 7.34 15 43.33 1.22 6.09 Marginal Product of Labor- additional output a firm produces as a result of hiring another worker Division of labor- Dividing tasks among workers to reduce the time workers use moving from one task to the next. Specialization- Focusing on fewer tasks to become more efficient The gains generated from the division of labor and specialization cause the ATC to decrease in the beginning and the MPL to increase in the beginning After the gains are exhausted diminishing returns sets in DEMINISHING RETURN- Principle that at some point adding more of one input to fixed amount of another will cause the MPL to decrease and the ATC to increase Eventually the gains from specialization and division of labor become exhausted and diminishing returns sets in. This means the last worker hired produced less than the person hired befor
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