# 14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen October 15, Lecture 13. Cost Function

Size: px
Start display at page:

Download "14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen October 15, 2007. Lecture 13. Cost Function"

Transcription

1 Short-Run Cost Function. Principles of Microeconomics, Fall Chia-Hui Chen October, ecture Cost Functions Outline. Chap : Short-Run Cost Function. Chap : ong-run Cost Function Cost Function et w be the cost per unit of labor and r be the cost per unit of capital. With the input abor () and Capital (K), the production cost is w + r K. A cost function C(q) is a function of q, which tells us what the minimum cost is for producing q units of output. We can also split total cost into fixed cost and variable cost as follows: C(q) = FC + V C(q). Fixed cost is independent of quantity, while variable cost is dependent on quantity. Short-Run Cost Function In the short-run, firms cannot change capital, that is to say, r K = const. Recall the production function given fixed capital level K in the short run (refer to ecture ) (see Figure ). Suppose w =, the variable cost curve can be derived from Figure. Adding r K to the variable cost, we obtain the total cost curve (see Figure ). Average total cost is TC FC + V C rk w(q; K) ATC = = = +. q q q q With the definition of the average product of labor: q AP =, Cite as: Chia-Hui Chen, course materials for. Principles of Microeconomics, Fall. MIT

2 Short-Run Cost Function Q 9 Figure : Short Run Production Function. TC C VC 9 q Figure : Short Run Cost Function. Cite as: Chia-Hui Chen, course materials for. Principles of Microeconomics, Fall. MIT

3 Short-Run Cost Function we can rewrite ATC as in which the average variable cost is ikewise, we rewrite the marginal cost: rk w ATC = +, q AP V C w(q; K) w = =. q q AP dtc dv C d(q) w w MC = = = w = =. dq dq dq q MP In ecture, we discussed the relation between average product of labor and marginal product of labor (see Figure ). We draw the curves for AV C and 9 AP MP 9 Figure : Average Product of abor and Marginal Product of abor. MC in the same way (see Figure ). The relation between MC and AV C is: If AV C decreases; if AV C increases; MC < AV C, MC > AV C, Cite as: Chia-Hui Chen, course materials for. Principles of Microeconomics, Fall. MIT

4 ong-run Cost Function MC ATC C AVC 9 Figure : Average Cost, Average Variable Cost, and Marginal Cost. if AV C is minimized. MC = AV C, Now consider the total cost. Note that the difference between ATC and AV C decreases with q as the average fixed cost term dies out (see Figure ). The relation between MC and ATC is: If AT C decreases; if AT C increases; if AT C is minimized. MC < ATC, MC > ATC, MC = ATC, Cite as: Chia-Hui Chen, course materials for. Principles of Microeconomics, Fall. MIT

5 ong-run Cost Function.. k Figure : Isoquant Curve. ong-run Cost Function In the long-run, both K and are variable. The isoquant curve describes the same output level with different combination of K and (see Figure ). The slope of an isoquant curve is MP MRTS = MPK. Similarly, the isocost curve is constructed by different (K, ) with the same cost (see Figure ). The isocost curve equation is: rk + w = const, therefore, it is linear, with a slope w. r Now we want to minimize the cost rk +w subject to an output level Q(K, ) = q. This minimum cost can be obtained when the isocost curve is tangent to the isoquant curve (see Figure ). Thus the slopes of these two curves are equal: MP w MRTS = =. MP K r Now consider an increase in wage (w). The slope of the isocost curve increases (see Figure ), and the firm use more capital and less labor. The firm s choice of input moves from A to B in the figure. The expansion path shows the minimum cost combinations of labor and capital at each level of output (see Figure 9). Cite as: Chia-Hui Chen, course materials for. Principles of Microeconomics, Fall. MIT

6 K ong-run Cost Function Figure : Isocost Curve. 9 K 9 Figure : Minimize the Cost Subject to a Output evel. Cite as: Chia-Hui Chen, course materials for. Principles of Microeconomics, Fall. MIT

7 ong-run Cost Function 9 K B A 9 Figure : The Change of Cost Minimized Situation. 9 Expansion Path K 9 Figure 9: Expansion Path. Cite as: Chia-Hui Chen, course materials for. Principles of Microeconomics, Fall. MIT

8 ong-run Cost Function Example (Calculating the Cost.). Given the production function q = K. In the short run, q C SR (q; K) = rk + w, K where K is fixed. In the long run, according to the equation MP MP K w =, r we have K w =. r Then the expansion path is w K =. r Substituting this result into the production function, we obtain r = q ( ), w w K = q ( ). r Hence, the long-run cost function is: C R (q) = w + rk = q wr. Cite as: Chia-Hui Chen, course materials for. Principles of Microeconomics, Fall. MIT

### Production Functions

Short Run Production Function. Principles of Microeconomics, Fall Chia-Hui Chen October, ecture Production Functions Outline. Chap : Short Run Production Function. Chap : ong Run Production Function. Chap

### SHORT-RUN PRODUCTION

TRUE OR FALSE STATEMENTS SHORT-RUN PRODUCTION 1. According to the law of diminishing returns, additional units of the labour input increase the total output at a constantly slower rate. 2. In the short-run

### The Cost of Production

The Cost of Production 1. Opportunity Costs 2. Economic Costs versus Accounting Costs 3. All Sorts of Different Kinds of Costs 4. Cost in the Short Run 5. Cost in the Long Run 6. Cost Minimization 7. The

### MERSİN UNIVERSITY FACULTY OF ECONOMICS AND ADMINISTRATIVE SCİENCES DEPARTMENT OF ECONOMICS MICROECONOMICS MIDTERM EXAM DATE 18.11.

MERSİN UNIVERSITY FACULTY OF ECONOMICS AND ADMINISTRATIVE SCİENCES DEPARTMENT OF ECONOMICS MICROECONOMICS MIDTERM EXAM DATE 18.11.2011 TİIE 12:30 STUDENT NAME AND NUMBER MULTIPLE CHOICE. Choose the one

### Microeconomics Topic 6: Be able to explain and calculate average and marginal cost to make production decisions.

Microeconomics Topic 6: Be able to explain and calculate average and marginal cost to make production decisions. Reference: Gregory Mankiw s Principles of Microeconomics, 2 nd edition, Chapter 13. Long-Run

### Review of Production and Cost Concepts

Sloan School of Management 15.010/15.011 Massachusetts Institute of Technology RECITATION NOTES #3 Review of Production and Cost Concepts Thursday - September 23, 2004 OUTLINE OF TODAY S RECITATION 1.

### Long Run Supply and the Analysis of Competitive Markets. 1 Long Run Competitive Equilibrium

Long Run Competitive Equilibrium. rinciples of Microeconomics, Fall 7 Chia-Hui Chen October 9, 7 Lecture 6 Long Run Supply and the Analysis of Competitive Markets Outline. Chap 8: Long Run Equilibrium.

### NAME: INTERMEDIATE MICROECONOMIC THEORY SPRING 2008 ECONOMICS 300/010 & 011 Midterm II April 30, 2008

NAME: INTERMEDIATE MICROECONOMIC THEORY SPRING 2008 ECONOMICS 300/010 & 011 Section I: Multiple Choice (4 points each) Identify the choice that best completes the statement or answers the question. 1.

### Chapter 7: The Costs of Production QUESTIONS FOR REVIEW

HW #7: Solutions QUESTIONS FOR REVIEW 8. Assume the marginal cost of production is greater than the average variable cost. Can you determine whether the average variable cost is increasing or decreasing?

### Production Functions and Cost of Production

1 Returns to Scale 1 14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen October, 2007 Lecture 12 Production Functions and Cost of Production Outline 1. Chap 6: Returns to Scale 2. Chap 6: Production

### Theory of the Firm. The Firm s Problem: Costs and Profits

Theory of the Firm The Firm s Problem: Costs and Profits Firm s Problem: Description We consider a firm producing a single good Q using two inputs: L (labour) and K (capital). The technology of the firm

### An increase in the number of students attending college. shifts to the left. An increase in the wage rate of refinery workers.

1. Which of the following would shift the demand curve for new textbooks to the right? a. A fall in the price of paper used in publishing texts. b. A fall in the price of equivalent used text books. c.

### 19 : Theory of Production

19 : Theory of Production 1 Recap from last session Long Run Production Analysis Return to Scale Isoquants, Isocost Choice of input combination Expansion path Economic Region of Production Session Outline

### Profit and Revenue Maximization

WSG7 7/7/03 4:36 PM Page 95 7 Profit and Revenue Maximization OVERVIEW The purpose of this chapter is to develop a general framework for finding optimal solutions to managerial decision-making problems.

### Production Function in the Long-Run. Business Economics Theory of the Firm II Production and Cost in the Long Run. Description of Technology

Business Economics Theory of the Firm II Production and Cost in the ong Run Two or more variable input factors Thomas & Maurice, Chapter 9 Herbert Stocker herbert.stocker@uibk.ac.at Institute of International

### Econ 101: Principles of Microeconomics

Econ 101: Principles of Microeconomics Chapter 12 - Behind the Supply Curve - Inputs and Costs Fall 2010 Herriges (ISU) Ch. 12 Behind the Supply Curve Fall 2010 1 / 30 Outline 1 The Production Function

### Technology, Production, and Costs

Chapter 10 Technology, Production, and Costs 10.1 Technology: An Economic Definition 10.1 LEARNING OBJECTIVE Learning Objective 1 Define technology and give examples of technological change. A firm s technology

### PART A: For each worker, determine that worker's marginal product of labor.

ECON 3310 Homework #4 - Solutions 1: Suppose the following indicates how many units of output y you can produce per hour with different levels of labor input (given your current factory capacity): PART

### Microeconomics and mathematics (with answers) 5 Cost, revenue and profit

Microeconomics and mathematics (with answers) 5 Cost, revenue and profit Remarks: = uantity Costs TC = Total cost (= AC * ) AC = Average cost (= TC ) MC = Marginal cost [= (TC)'] FC = Fixed cost VC = (Total)

### Deriving MRS from Utility Function, Budget Constraints, and Interior Solution of Optimization

Utilit Function, Deriving MRS. Principles of Microeconomics, Fall Chia-Hui Chen September, Lecture Deriving MRS from Utilit Function, Budget Constraints, and Interior Solution of Optimization Outline.

### Massachusetts Institute of Technology Department of Economics. 14.01 Principles of Microeconomics Exam 2 Tuesday, November 6th, 2007

Page 1 of 8 Massachusetts Institute of Technology Department of Economics 14.01 Principles of Microeconomics Exam Tuesday, November 6th, 007 Last Name (Please print): First Name: MIT ID Number: Instructions.

### MICROECONOMICS AND POLICY ANALYSIS - U8213 Professor Rajeev H. Dehejia Class Notes - Spring 2001

MICROECONOMICS AND POLICY ANALYSIS - U8213 Professor Rajeev H. Dehejia Class Notes - Spring 2001 General Equilibrium and welfare with production Wednesday, January 24 th and Monday, January 29 th Reading:

### Economics 10: Problem Set 3 (With Answers)

Economics 1: Problem Set 3 (With Answers) 1. Assume you own a bookstore that has the following cost and revenue information for last year: - gross revenue from sales \$1, - cost of inventory 4, - wages

### CHAPTER 10 MARKET POWER: MONOPOLY AND MONOPSONY

CHAPTER 10 MARKET POWER: MONOPOLY AND MONOPSONY EXERCISES 3. A monopolist firm faces a demand with constant elasticity of -.0. It has a constant marginal cost of \$0 per unit and sets a price to maximize

### , to its new position, ATC 2

S171-S184_Krugman2e_PS_Ch12.qxp 9/16/08 9:22 PM Page S-171 Behind the Supply Curve: Inputs and Costs chapter: 12 1. Changes in the prices of key commodities can have a significant impact on a company s

### 21 : Theory of Cost 1

21 : Theory of Cost 1 Recap from last Session Production cost Types of Cost: Accounting/Economic Analysis Cost Output Relationship Short run cost Analysis Session Outline The Long-Run Cost-Output Relations

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron.

Principles of Microeconomics, Quiz #5 Fall 2007 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron. 1) Perfect competition

### MATH MODULE 5. Total, Average, and Marginal Functions. 1. Discussion M5-1

MATH MODULE Total, Average, and Marginal Functions 1. Discussion A very important skill for economists is the ability to relate total, average, and marginal curves. Much of standard microeconomics involves

### Production and Cost Analysis

Production and Cost Analysis The entire production process begins with the supply of factors of production or inputs used towards the production of a final good we all consume in the final good market.

### Monopoly and Monopsony

Multi-lant Firm. rinciples of Microeconomics, Fall Chia-Hui Chen November, Lecture Monopoly and Monopsony Outline. Chap : Multi-lant Firm. Chap : Social Cost of Monopoly ower. Chap : rice Regulation. Chap

### Massachusetts Institute of Technology Department of Economics. 14.01 Principles of Microeconomics Exam 2 Tuesday, November 6th, 2007

Page 1 of 18 Massachusetts Institute of Technology Department of Economics 14.01 Principles of Microeconomics Exam 2 Tuesday, November 6th, 2007 Last Name (Please print): First Name: MIT ID Number: Instructions.

### Derivatives as Rates of Change

Derivatives as Rates of Change One-Dimensional Motion An object moving in a straight line For an object moving in more complicated ways, consider the motion of the object in just one of the three dimensions

### Chapter 12. The Costs of Produc4on

Chapter 12 The Costs of Produc4on Copyright 214 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. What will you learn

### Chapter 22 The Cost of Production Extra Multiple Choice Questions for Review

Chapter 22 The Cost of Production Extra Multiple Choice Questions for Review 1. Implicit costs are: A) equal to total fixed costs. B) comprised entirely of variable costs. C) "payments" for self-employed

### a. What is the total revenue Joe can earn in a year? b. What are the explicit costs Joe incurs while producing ten boats?

Chapter 13 1. Joe runs a small boat factory. He can make ten boats per year and sell them for 25,000 each. It costs Joe 150,000 for the raw materials (fibreglass, wood, paint, and so on) to build the ten

### Costs. Accounting Cost{stresses \out of pocket" expenses. Depreciation costs are based on tax laws.

Costs Accounting Cost{stresses \out of pocket" expenses. Depreciation costs are based on tax laws. Economic Cost{based on opportunity cost (the next best use of resources). 1. A self-employed entrepreneur's

### Cost Constraint/Isocost Line

Cost Constraint/Isocost ine COST CONSTRAINT C= w + rk (m = p 1 x 1 +p 2 x 2 ) w: wage rate (including fringe benefits, holidays, PRSI, etc) r: rental rate of capital Rearranging: K=C/r-(w/r) COST CONSTRAINT

### chapter Behind the Supply Curve: >> Inputs and Costs Section 2: Two Key Concepts: Marginal Cost and Average Cost

chapter 8 Behind the Supply Curve: >> Inputs and Costs Section 2: Two Key Concepts: Marginal Cost and Average Cost We ve just seen how to derive a firm s total cost curve from its production function.

### Profit Maximization. PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University

Profit Maximization PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 1 The Nature and Behavior of Firms A firm An association of individuals Firms Who have organized themselves

### Cosumnes River College Principles of Microeconomics Problem Set 6 Due Tuesday, March 24, 2015

Name: Solutions Cosumnes River College Principles of Microeconomics Problem Set 6 Due Tuesday, March 24, 2015 Spring 2015 Prof. Dowell Instructions: Write the answers clearly and concisely on these sheets

### Long-Run Average Cost. Econ 410: Micro Theory. Long-Run Average Cost. Long-Run Average Cost. Economies of Scale & Scope Minimizing Cost Mathematically

Slide 1 Slide 3 Econ 410: Micro Theory & Scope Minimizing Cost Mathematically Friday, November 9 th, 2007 Cost But, at some point, average costs for a firm will tend to increase. Why? Factory space and

economicsentrance.weebly.com Basic Exercises Micro Economics AKG 09 Table of Contents MICRO ECONOMICS Budget Constraint... 4 Practice problems... 4 Answers... 4 Supply and Demand... 7 Practice Problems...

### Price Theory Lecture 4: Production & Cost

Price Theory Lecture 4: Production & Cost Now that we ve explained the demand side of the market, our goal is to develop a greater understanding of the supply side. Ultimately, we want to use a theory

### or, put slightly differently, the profit maximizing condition is for marginal revenue to equal marginal cost:

Chapter 9 Lecture Notes 1 Economics 35: Intermediate Microeconomics Notes and Sample Questions Chapter 9: Profit Maximization Profit Maximization The basic assumption here is that firms are profit maximizing.

### Learning Objectives. After reading Chapter 11 and working the problems for Chapter 11 in the textbook and in this Workbook, you should be able to:

Learning Objectives After reading Chapter 11 and working the problems for Chapter 11 in the textbook and in this Workbook, you should be able to: Discuss three characteristics of perfectly competitive

### Chapter 8. Competitive Firms and Markets

Chapter 8. Competitive Firms and Markets We have learned the production function and cost function, the question now is: how much to produce such that firm can maximize his profit? To solve this question,

### Chapter 6 Competitive Markets

Chapter 6 Competitive Markets After reading Chapter 6, COMPETITIVE MARKETS, you should be able to: List and explain the characteristics of Perfect Competition and Monopolistic Competition Explain why a

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MBA 640, Survey of Microeconomics, Quiz #4 Fall 2006 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In the short run, A) there are no variable

### Productioin OVERVIEW. WSG5 7/7/03 4:35 PM Page 63. Copyright 2003 by Academic Press. All rights of reproduction in any form reserved.

WSG5 7/7/03 4:35 PM Page 63 5 Productioin OVERVIEW This chapter reviews the general problem of transforming productive resources in goods and services for sale in the market. A production function is the

### Cost of Production : An Example

University of California, Berkeley Spring 008 ECON 00A Section 0, Cost of Production : An Example What you should get out of this example: Understand the technical derivation of optimal inputs in Cost

### Price Elasticity of Supply; Consumer Preferences

1 Price Elasticity of Supply 1 14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen September 12, 2007 Lecture 4 Price Elasticity of Supply; Consumer Preferences Outline 1. Chap 2: Elasticity -

### Practice Multiple Choice Questions Answers are bolded. Explanations to come soon!!

Practice Multiple Choice Questions Answers are bolded. Explanations to come soon!! For more, please visit: http://courses.missouristate.edu/reedolsen/courses/eco165/qeq.htm Market Equilibrium and Applications

### Economics II: Micro Fall 2009 Exercise session 5. Market with a sole supplier is Monopolistic.

Economics II: Micro Fall 009 Exercise session 5 VŠE 1 Review Optimal production: Independent of the level of market concentration, optimal level of production is where MR = MC. Monopoly: Market with a

### c. Given your answer in part (b), what do you anticipate will happen in this market in the long-run?

Perfect Competition Questions Question 1 Suppose there is a perfectly competitive industry where all the firms are identical with identical cost curves. Furthermore, suppose that a representative firm

### Cost OVERVIEW. WSG6 7/7/03 4:36 PM Page 79. Copyright 2003 by Academic Press. All rights of reproduction in any form reserved.

WSG6 7/7/03 4:36 PM Page 79 6 Cost OVERVIEW The previous chapter reviewed the theoretical implications of the technological process whereby factors of production are efficiently transformed into goods

### Technology and Economic Growth

Growth Accounting Formula Technology and Economic Growth A. %ΔY = %ΔA + (2/3) %ΔN + (1/3) %ΔK B. Ex. Suppose labor, capital, and technology each grow at 1% a year. %ΔY = 1 + (2/3) 1 + (1/3) 1 = 2 C. Growth

### The Envelope Theorem 1

John Nachbar Washington University April 2, 2015 1 Introduction. The Envelope Theorem 1 The Envelope theorem is a corollary of the Karush-Kuhn-Tucker theorem (KKT) that characterizes changes in the value

### Managerial Economics & Business Strategy Chapter 8. Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Managerial Economics & Business Strategy Chapter 8 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets I. Perfect Competition Overview Characteristics and profit outlook. Effect

### CHAPTER 8 PROFIT MAXIMIZATION AND COMPETITIVE SUPPLY

CHAPTER 8 PROFIT MAXIMIZATION AND COMPETITIVE SUPPLY TEACHING NOTES This chapter begins by explaining what we mean by a competitive market and why it makes sense to assume that firms try to maximize profit.

### Sample Midterm Solutions

Sample Midterm Solutions Instructions: Please answer both questions. You should show your working and calculations for each applicable problem. Correct answers without working will get you relatively few

### Fixed Cost. Marginal Cost. Fixed Cost. Marginal Cost

1. Complete the following table (round each answer to the nearest whole number): Output Total Variable Fixed Marginal Average Avg. Var. Avg. Fixed 0 30 1 35 60 3 110 4 00 5 30 6 600 Output Total Variable

### Market for cream: P 1 P 2 D 1 D 2 Q 2 Q 1. Individual firm: W Market for labor: W, S MRP w 1 w 2 D 1 D 1 D 2 D 2

Factor Markets Problem 1 (APT 93, P2) Two goods, coffee and cream, are complements. Due to a natural disaster in Brazil that drastically reduces the supply of coffee in the world market the price of coffee

### 8. Average product reaches a maximum when labor equals A) 100 B) 200 C) 300 D) 400

Ch. 6 1. The production function represents A) the quantity of inputs necessary to produce a given level of output. B) the various recipes for producing a given level of output. C) the minimum amounts

### APPLICATION 8.2 APPLICATION 8.3 Alumina? Hospitals Are Businesses Too 8.2 APPLICATION 8.4. APPLICATION 8.7 Experience Reduces Costs of Computer Chips

besa44438_ch08.qxd 10/12/04 4:49 PM Page 259 8 COST CURVES C H A P T E R 8.1 L ONG-RUN COST CURVES APPLICATION 8.1 The Long Run Cost of Trucking APPLICATION 8.2 APPLICATION 8.3 Alumina? APPLICATION 8.4

### Overview. Managerial Economics & Business Strategy Baye Chapters 4-5 Edited by DF 10/12. Consumer Behavior

Managerial Economics & usiness Strategy aye hapters 4-5 Edited by DF 1/12 Overview onsumer ehavior ndifference urve nalysis onsumer Preference Ordering onstraints The udget onstraint hanges in ncome hanges

### Q = ak L + bk L. 2. The properties of a short-run cubic production function ( Q = AL + BL )

Learning Objectives After reading Chapter 10 and working the problems for Chapter 10 in the textbook and in this Student Workbook, you should be able to: Specify and estimate a short-run production function

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Practice for Perfect Competition Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following is a defining characteristic of a

### AP Microeconomics Unit V: The Factor (Resource) Market Problem Set #5

1. /15 2. /20 3. /15 4. /25 Total: /75 Name: Team: AP Microeconomics Unit V: The Factor (Resource) Market Problem Set #5 1. ( /15) Define the term and explain a situation that demonstrates the real world

### COST THEORY. I What costs matter? A Opportunity Costs

COST THEORY Cost theory is related to production theory, they are often used together. However, the question is how much to produce, as opposed to which inputs to use. That is, assume that we use production

### N. Gregory Mankiw Principles of Economics. Chapter 13. THE COSTS OF PRODUCTION

N. Gregory Mankiw Principles of Economics Chapter 13. THE COSTS OF PRODUCTION Solutions to Problems and Applications 1. a. opportunity cost; b. average total cost; c. fixed cost; d. variable cost; e. total

### Pre-Test Chapter 20 ed17

Pre-Test Chapter 20 ed17 Multiple Choice Questions 1. In the above diagram it is assumed that: A. some costs are fixed and other costs are variable. B. all costs are variable. C. the law of diminishing

### Prot Maximization and Cost Minimization

Simon Fraser University Prof. Karaivanov Department of Economics Econ 0 COST MINIMIZATION Prot Maximization and Cost Minimization Remember that the rm's problem is maximizing prots by choosing the optimal

### Agenda. Productivity, Output, and Employment, Part 1. The Production Function. The Production Function. The Production Function. The Demand for Labor

Agenda Productivity, Output, and Employment, Part 1 3-1 3-2 A production function shows how businesses transform factors of production into output of goods and services through the applications of technology.

### Microeconomics Topic 7: Contrast market outcomes under monopoly and competition.

Microeconomics Topic 7: Contrast market outcomes under monopoly and competition. Reference: N. Gregory Mankiw s rinciples of Microeconomics, 2 nd edition, Chapter 14 (p. 291-314) and Chapter 15 (p. 315-347).

### AP Microeconomics Chapter 12 Outline

I. Learning Objectives In this chapter students will learn: A. The significance of resource pricing. B. How the marginal revenue productivity of a resource relates to a firm s demand for that resource.

### Market Supply in the Short Run

Equilibrium in Perfectly Competitive Markets (Assume for simplicity that all firms have access to the same technology and input markets, so they all have the same cost curves.) Market Supply in the Short

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron.

Principles of Microeconomics Fall 2007, Quiz #6 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron. 1) A monopoly is

### Connecting the Firm s Optimal Output and Input Decisions

Perspectives on Economic Education Research Connecting the Firm s Optimal Output and Input Decisions Stephen Shmanske * Abstract: The paper presents a figure and some simple numerical/algebraic examples

### Market Structure: Perfect Competition and Monopoly

WSG8 7/7/03 4:34 PM Page 113 8 Market Structure: Perfect Competition and Monopoly OVERVIEW One of the most important decisions made by a manager is how to price the firm s product. If the firm is a profit

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Firms that survive in the long run are usually those that A) remain small. B) strive for the largest

### Profit Maximization. 2. product homogeneity

Perfectly Competitive Markets It is essentially a market in which there is enough competition that it doesn t make sense to identify your rivals. There are so many competitors that you cannot single out

### AP Microeconomics Review

AP Microeconomics Review 1. Firm in Perfect Competition (Long-Run Equilibrium) 2. Monopoly Industry with comparison of price & output of a Perfectly Competitive Industry 3. Natural Monopoly with Fair-Return

### Elasticities of Demand

rice Elasticity of Demand 4.0 rinciples of Microeconomics, Fall 007 Chia-Hui Chen September 0, 007 Lecture 3 Elasticities of Demand Elasticity. Elasticity measures how one variable responds to a change

### 1 Maximizing pro ts when marginal costs are increasing

BEE12 Basic Mathematical Economics Week 1, Lecture Tuesda 12.1. Pro t maimization 1 Maimizing pro ts when marginal costs are increasing We consider in this section a rm in a perfectl competitive market

### Professor H.J. Schuetze Economics 370

Topic 3.1c - Trade Professor H.J. Schuetze Economics 370 Opening Up to Trade Unlike what the simple labour demand model assumes, labour markets do not operate in a global vacuum To be certain, the Canadian

### Long Run Economic Growth Agenda. Long-run Economic Growth. Long-run Growth Model. Long-run Economic Growth. Determinants of Long-run Growth

Long Run Economic Growth Agenda Long-run economic growth. Determinants of long-run growth. Production functions. Long-run Economic Growth Output is measured by real GDP per capita. This measures our (material)

### BADM 527, Fall 2013. Midterm Exam 2. Multiple Choice: 3 points each. Answer the questions on the separate bubble sheet. NAME

BADM 527, Fall 2013 Name: Midterm Exam 2 November 7, 2013 Multiple Choice: 3 points each. Answer the questions on the separate bubble sheet. NAME 1. According to classical theory, national income (Real

### 11 PERFECT COMPETITION. Chapter. Competition

Chapter 11 PERFECT COMPETITION Competition Topic: Perfect Competition 1) Perfect competition is an industry with A) a few firms producing identical goods B) a few firms producing goods that differ somewhat

### Chapter 4: Elasticity

Chapter : Elasticity Elasticity of eman: It measures the responsiveness of quantity emane (or eman) with respect to changes in its own price (or income or the price of some other commoity). Why is Elasticity

### CEVAPLAR. Solution: a. Given the competitive nature of the industry, Conigan should equate P to MC.

1 I S L 8 0 5 U Y G U L A M A L I İ K T İ S A T _ U Y G U L A M A ( 4 ) _ 9 K a s ı m 2 0 1 2 CEVAPLAR 1. Conigan Box Company produces cardboard boxes that are sold in bundles of 1000 boxes. The market

### Monopoly and Monopsony Labor Market Behavior

Monopoly and Monopsony abor Market Behavior 1 Introduction For the purposes of this handout, let s assume that firms operate in just two markets: the market for their product where they are a seller) and

### Pure Competition urely competitive markets are used as the benchmark to evaluate market

R. Larry Reynolds Pure Competition urely competitive markets are used as the benchmark to evaluate market P performance. It is generally believed that market structure influences the behavior and performance

### ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS

ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS Due the Week of June 9 Chapter 6 WRITE [4] Gomez runs a small pottery firm. He hires one helper at \$12,000 per year, pays annual rent of \$5,000 for his

### 4. The accountant s product costing art

4. The accountant s product costing art How to move from cost pools to product costs Define an appropriate number of cost pools Each cost pool aggregates costs associated with some set of activities Estimate

### ECON 301, Professor Hogendorn. Problem Set 6

ECON 301, Professor Hogendorn Problem Set 6 1. Luxra. Luxra Inc. is a firm with cost function TC() = 2 + 10. This firm is a perfectl competitive price-taker in a market where p = 100. (a) Write down Luxra

### Practice Questions Week 8 Day 1

Practice Questions Week 8 Day 1 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The characteristics of a market that influence the behavior of market participants

### Total Cost Variable Cost Fixed Cost

uestion 3: What is an average cost function? When a business produces goods or services, it incurs costs associated with the production of these goods and services. Some of these costs are variable and