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The Production Function II

The Production Function II

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Published by adillawa

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Published by: adillawa on Mar 17, 2010
Copyright:Attribution Non-commercial

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09/21/2010

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The Production Function IIThe Production Function II
1. Costs - short run1. Costs - short run
measuresmeasures
relationship - production & costsrelationship - production & costs
2. Costs - long run2. Costs - long run
scale expansion pathscale expansion path
long run costslong run costs
3. Returns to scale & economies of 3. Returns to scale & economies of scalescale
 
 
1. Costs - short run1. Costs - short run
Fixed & variable costsFixed & variable costs
fixed = unavoidablefixed = unavoidable
variable = avoidablevariable = avoidable
Costs rise as output increasesCosts rise as output increases
e.g. As Le.g. As L
, TPP, TPP
 
TCTC
given Pgiven P
KK
and Pand P
LL
inverse relationship MP & MC, AC & APinverse relationship MP & MC, AC & AP
 
 
Measures of costMeasures of cost
Total costs: TC = TFC + TVCTotal costs: TC = TFC + TVC
Average costs: ATC = TC \ TPPAverage costs: ATC = TC \ TPP
or TC \ Qor TC \ Q
ATC = AFC + AVCATC = AFC + AVC
Marginal costs: MC =Marginal costs: MC =
TC \ TC \ 
TPPTPP
 ‘… ‘…the extra cost of producing one morethe extra cost of producing one moreunit.’ unit.’ 
Shape - FiguresShape - Figures

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