ECON 201 1nd Edition Lecture 15 Outline of Last Lecture I Introduction II The Firm and The Market III The Production Process Outline of Current Lecture I II III IV V VI Fixed Costs Variable Costs and Total Costs Average Costs Marginal Cost The Shapes of Cost Curves The Relationship Between Marginal Productivity and Marginal Costs The Relationship Between Marginal Cost and Average Cost Current Lecture I II III Fixed Costs Variable Costs and Total Costs a Fixed Costs FC are those that are spent and cannot be changed in the period of the time under consideration i In the long run there are no fixed costs since all inputs and therefore their costs are variable ii In the short run a number of inputs and their costs will be fixed b Workers are an example of variable costs VC which are costs that change as output changes c The sum of the variable and fixed costs are total costs TC d TC FC VC Average Costs a Average fixed costs AFC equals fixed cost divided by quantity produced AFC FC Q b Average Variable Costs AVC equals variable cost divided by quantity produced AVC VC Q c Average total costs ATC equals total cost divided by quantity produced ATC TC Q OR ATC AFC AVC Marginal Cost a Marginal cost MC is the increase in the total cost when output increase by one unit MC TC Q These 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 IV V VI The Shapes of Cost Curves a The variable and total cost curves are upward sloping i Increasing output increases VC and TC b The fixed cost curve is always constant i Increasing output does change FC c The average fixed cost curve is downward sloping i Increasing output decreases AFC d The marginal cost average variable cost and average total cost curves are UShaped i Increasing output initially leads to a decrease in MC AVC and ATC but eventually they increase The Relationship Between Marginal Productivity and Marginal Costs a If marginal productivity is rising marginal costs are falling b If average productivity is falling average costs are rising The Relationship Between Marginal Cost and Average Cost a b c d If MC ATC then ATC is rising If MC AVC then AVC is rising If MC ATC then ATC is falling If MC AVC then AVC is falling e If MC AVC and MC ATC then AVC and ATC are at their minimum points
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