ECO 105 1nd Edition Lecture 10 Outline of Last Lecture I. Degrees of ElasticityII. Theory of the FirmOutline of Current Lecture I. Theory of the FirmCurrent LectureI. Theory of the Firma. Theory of Production (summary)i. k is fixed (k = capital)ii. Product in function: Q = f(L,k)iii. Production schedule1. ∆Q/∆L is the marginal product of labora. Change in the denominator = 1b. Positive but decreasingb. Theory of CostL Q W FC VC TC MC AVC ATC0 0 100 200 0 200 -- -- --1 5 100 200 100 300 (300-200)/(5-0) = 20100/5 =20300/5 =602 15 100 200 200 400 (400-300)/(15-5) =10200/15= 13.3400/15= 26.63 30 100 200 300 500 100/15 =6.610 16.64 55 100 200 400 600 100/25 = 7.27 11These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.45 85 100 200 500 700 100/30 =3.35.8 8.26 100 100 200 600 800 6.6 6 87 110 100 200 700 900 10 6.3 8.28 115 100 200 800 1000 20 7 8.69 118 100 200 900 1100 33.3 7.6 9.310 120 100 200 1000 1200 50 8.3 10i. W = wage1. Cost per unit of Lii. FC = fixed cost1. Doesn’t change with changes in Qiii. VC = variable cost1. VC = L * Wiv. TC = total cost1. TC = FC + VCv. MC = marginal cost1. ∆TC/∆Q2. MC (Q(L))3. Function output/quantity and output is a function of labor input (different variables, two different graphs)vi. ATC = average total cost1. ATC = TC/Qvii. AVC = average variable cost1. AVC =