ECON 202 1nd Edition Lecture 20 Outline of Last Lecture I. Market Inefficienciesa. Public Goodsi. Market Demand CurveII. Business Costs and Productiona. Explicit vs. Implicit Costsi. Accounting Profit vs. Economic Profitb. Short Run vs. Long RunOutline of Current Lecture III. Business Costs and Productiona. Production Termsb. Law of Diminishing Marginal Productivityc. Product Curvesd. Cost MeasuresCurrent LectureBusiness Costs and ProductionProduction Terms- Total Production – total output (Q)- Average Production of input X – total production ÷ number of units of input (APX)oAverage Production=total pro duction¿ of X or A PX=QXExample: Suppose 10 workers make 50 computers; Average Production of each worker would equal 5 computers.- Marginal Product of Input X – increase in output caused by using one additional unit of input X, other things equal (MPX)oMarginal Production=∆ Output∆ Units of X=∆ Q∆ XIf you hire an 11th worker output increases to 54 computers. The Average Production is: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.-M PX=54−5011−10= 4 computers-A PX=5411=4.91 computersIn General:When Marginal Production is GREATER THAN the Average Production then the Average Production increases; andWhen Marginal Production is LESS THAN the Average Production then the Average Production decreasesLaw of Diminishing Productivity – as more units of a variable input are combined with fixed inputs, the marginal product of the variable input will eventually decline, other things equal.Units of Variable Input Total Product Marginal Product0 0 -1 5 52 11 63 13 24 12 -1Product CurvesTotal ProductMarginal Product and Average ProductUnits of Variable InputUnits of Variable InputTPAPMPIncreasing Marginal ReturnsDiminishing Marginal ReturnsNegative Marginal ReturnsAverage Product intersects Marginal Product at the maximum point of Average ProductCost Measures- Total Cost = Total Fixed Cost + Total Variable CostoTC=TFC +TVC- Average or Per Unit CostsoTotalAverage ¿ Cost= ¿Cost¿Output=TFCQ= AFCoAverage Variable Cost=Total VariableCostOutput=TVCQ=AVCoAverage TotalCost =Total CostOutput=T CQ= ATC- Marginal Cost – additional cost of producing one more unit of outputoMarginalCost=∆ TotalCost∆ Output=∆ TC∆ Q=MCExample: Output Total Cost Marginal Cost100 625 -101 632 7Short Run Cost CurveAFC = TFC/QAVC = TVC/QATC = TC/QMC =
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