Essay about Cost Curve

Submitted By ewmclach
Words: 885
Pages: 4
Open Document
ECON 301 FINALLL WAZZUP:
Utility/Profit Maximisation

* Consumers maximise utility by expanding their purchases until the utility received from the last unit equals the price to be paid for this unit.
Producers maximise profits by expanding output until the price received for the last unit produced equals the cost incurred by producing this unit.

* Fixed cost FC does not vary with output (horizontal line) (pretend its $50) * VC=0 when Q=0 * TC curve is determined by VERTICALLY adding the FC curve to the VC curve * so the distance between TC curve and VC curve is FC * afc falls continuously from $50, as output (Q) increases.. AFC=FC/Q * whenever MC lies below AC, the AC curve falls * whenever AC is at a MIN, MC=AC *
Average-Marginal Relationship * ATC curve shows the total cost of production * The vertical distance between the ATC and AVC curves decreases as Q increases * The AVC curve reaches MIN point at a lower out than the ATC curve * This is because MC=AVC at its min point and MC=ATC at its min point * * * * Mc eventually rises with the quantity of output * ATC curve is USHAPED * MC curve crossed the ATC curve at the MIN of ATC
The ISOCOST line * Shows all possible combos of labor and capital that can be purchased for a given TC * C=wL+rK * For ever different level of cost, this equation descrives a diff. isocost line * Rewritten: K=C/r-(w/r)L * Isocost line has a slope of dK/dL=-w/r * Marginal rate of technical substatution of LABOR for CAPITAL is the negative of the slpe of the isoquant and is eual to the ratio of the marginal products of labor and capital * MRTS= -dK/dL=MPofL/MPofK * This means that when a firm minimized the cost of producing a particular output, the following condition holds: * MPl/MPk=w/r * eg. Cost minimizationg * L at w=10/hr K at r=20/hr C=10L+20K *
Economies and Diseconmoies of scale * As a firms output increases, the cost of produsing that output is lilely to decline, at least to a point because: * If the firm operates on a larger scale, workers can specialize in the activities at which they are most productive * Scale can provide flexibility. By varying the combo of inputs utilized to produces the firms output, managers can organized the production process more effectively * economies of scale: situation in which output can doubled for less than a doubling cost * diseconomies of scale: situation in whicj a doubling of output requires more than doubling of cost * Ec=(dC/C)/(dq/q)

ATC=TC/Q MC=dTC/dQ (change in total cost/change in quantity of output)
AFC=FC/Q
AVC=VC/Q

1. Deriving Slope when Two Independent Variables are Functions of a Third Variable

If you have a function such as:

w = xy

where

x = f(z) y = g(z)

the slope of w with respect to z can be found using the following equation:

dw/dz = (dx/dz)y + x(dy/dz).

For example, if

w = xy

and

x = z4 y = z2

dw/dz = (4z3)z2 + z4(2z) = 4z5 + 2z5 = 6z5

This is the same result you would have obtained if you had multiplied x by y before calculating the slope. That is, as

w =
Show More

Related Documents: Essay about Cost Curve

Paying More For Primary Care: Can It Help Bend The Medicare Cost Curve?

March 2012 Issue Brief Paying More for Primary Care: Can It Help Bend the Medicare Cost Curve? J ames D. R eschovsky , a RkaDipta G hosh , k ate s tewaRt , anD D eboRah c hollet The mission of The Commonwealth Fund is to promote a high performance health care system. The Fund carries out this mandate by supporting independent research on health care issues and making grants to improve health care practice and policy. Support for this research was provided by The Commonwealth Fund. The views…

Words 7375 - Pages 30

Week 4 lecture Essay

how firms calculate profit, it’s probably easiest to use the dreaded cost curves. So you need to understand the underlying cost concepts behind the shape of the curve. Also, there’s a discussion of market types which is also beneficial for companies to understand so they can judge their market power Before we look at the cost curves in detail, we need to start with a few definitions. Although we will be looking at the costs of a firm in terms of wages, raw materials, etc., economists like to start…

Words 2102 - Pages 9

Costs and Change Essay

6. (a) Long-run, (b) Short-run, (c) Short-run, (d) Short-run 7. When marginal product is rising, marginal cost is falling. And when marginal product is diminishing, marginal cost is rising. , top to bottom: 15; 19; 17; 14; 9; 6; 3; -1. Average product data, top to bottom: 15; 17; 17; 16.25; 14.8; 13.33; 11.86; 10.25. Marginal Product is the slope and the rate of change of the TP curve. When TP is rising at an increasing rate, MP is positive and rising. When TP is rising at a diminishing rate,…

Words 629 - Pages 3

Economic Principles Essay

disease hits farms in Australia. Supply curve shifts left Whenever there is an outbreak of ‘foot-and-mouth’ disease in Australian farms, the result is an increase to the input prices for producing woollen jumpers. As a consequence, the supply of woollen jumpers shifts to the left on the graph, as shown below. The new equilibrium price is higher and the new equilibrium quantity of jumpers is lower. The price of leather jackets falls Demand curve shifts left When the price of leather jackets…

Words 970 - Pages 4

Essay Econ: Economics and Supply Curve

ECON 1. (Demand Under Perfect Competition) what type of demand curve does a perfectly competitive firm face? Why? A horizontal or a perfectly elastic, demand curve. A perfectly competitive firm is called a price taker because that firm must “take,” or accept, the market price- as in “take it or leave it.” 2. Explain the different options a firm has to minimize losses in the short run. A firm in perfect competition has no control over the market place. Sometimes that price may be so low…

Words 998 - Pages 4

Managerial Economics Chapter 9 Essay

Develops automatically due to economies of scale. If firms incurred no cost in developing new technologies and new products, all of the following will be true, except: There would be still be need for patents so that firms can have some government protection to charge higher prices. What is the difference between a monopolist demand curve and a market demand curve? A monopolist’s demand curve is the same as the market demand curve. What is the…

Words 1644 - Pages 7

Questions On Costs And Profit

Nick Brady 1293754 3/29/13 Costs and Profit 1) Revenue = 28 x 100 x 3 = $8400 Explicit Costs = 1600 + (28 x 100 x 2) + ((20 x 3 x 6) + (8 x 8 x 6)) = 1600 + 5600 + 744 = $7944 Implicit costs = 20 x 5 x 10 = $1000 Accounting profit = revenue – explicit costs = 8400 – 7944 = $456 Economic profit = revenue – (explicit costs + implicit costs) = 8400 – (7944 + 1000) = -$544 2) a) Marginal product is the change in output with one more unity of input. b) Inputs in…

Words 684 - Pages 3

Aluminum Industry In 1994

Aluminum Industry in 1994: Building the Short Run Supply Curve Managerial Economics Alp Atakan This material is for the exclusive use in MGEC classes at Koc University. No other use is allowed without my permission. 1 Trading Aluminum Ingot on the LME: An Illustration • During a typical trading period in the “ring”…

Words 2037 - Pages 9

Questions On Economics

profit, and total cost is profit equals total revenue minus total costs. 2. An accountant would not count the owner’s opportunity cost of alternative employment as an accounting cost. An example is given in the text in which Helen runs a cookie business, but she could instead work as a computer programmer. Because she's working in her cookie factory, she gives up the opportunity to earn $100 per hour as a computer programmer. The accountant ignores this opportunity cost because money does…

Words 585 - Pages 3

Economic Profit Essay

opportunity cost of production. Firms in perfect competition are price takers, meaning that a firm that cannot influence the market price and so it sets its own price equal to the market price. Because the firm is a price taker, its marginal revenue—which is the change in total revenue that results in a one-unit increase in the quantity sold—is equal to the market price and remains constant as output sold increases. The firm’s demand is perfectly elastic and the firm’s demand curve is a horizontal…

Words 1104 - Pages 5