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The Production Process and Costs

The Production Process and Costs. Short run Cost. Fixed costs: Costs that do not change with changes in output. Variable costs: Costs that change with changes in output. Average and Marginal Costs. AFC = (FC) / (Q) AVC = (TVC) / (Q) ATC = (TC)/(Q) MC = dTC/dQ.

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The Production Process and Costs

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  1. The Production Process and Costs

  2. Short run Cost • Fixed costs: Costs that do not change with changes in output. • Variable costs: Costs that change with changes in output.

  3. Average and Marginal Costs • AFC = (FC) / (Q) • AVC = (TVC) / (Q) • ATC = (TC)/(Q) • MC = dTC/dQ

  4. Pl (Price of Labor) is 400 per 1 unit L

  5. TFC = 2000

  6. TFC = 2000

  7. Relations Among Costs • Figure 5-11 Page 180. The relationship among costs. • Figure 5-12 Page 183. The relationships among average and marginal costs. • TC = TFC + TVC • ATC = ATFC + ATVC

  8. Algebraic Forms Of Cost Functions • TC(Q) = f + aQ + bQ2 + cQ3 a, b, c, f are constants f represents fixed costs TFC=? TVC=? MC=? ATFC=? ATVC=? ATC=?

  9. Case 1. • TC = 20 + 3Q2 -Marginal cost of producing 10 units of output? -Average fixed cost of producing 10 units of output? -Average variable cost of producing 10 units of output? -Average total cost of producing 10 units of output?

  10. Case 2. • No. 4 Page 195. TC = 50 + 25Q + 30Q2 + 5Q3 - The fixed cost of producing 10 units of output. - The variable cost of producing 10 units of output. - The total cost of producing 10 units of output. - The average fixed cost of producing 10 units of output. - The average variable cost of producing 10 units of output. - The average total cost of producing 10 units of output. - The marginal cost of producing 10 units of output.

  11. Case 3. • No. 6 Page 195 Fixed cost? Variable cost? Total cost? Average fixed cost? Average variable cost? Marginal cost?

  12. Case 3. (Continued)

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