SC ECON 221 - Final Exam Study Guide (13 pages)

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Final Exam Study Guide



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Final Exam Study Guide

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This review covers the information from lectures 16 - 21.


Pages:
13
Type:
Study Guide
School:
University Of South Carolina-Columbia
Course:
Econ 221 - Prin of Microeconomics
Edition:
1

Unformatted text preview:

ECON 221 Final Exam Study Guide Lectures 16 21 Lecture 16 October 30 Production Understanding how firms can maximize profits o Profits Total Revenue Total Costs o Both revenue and cost depend on quantity produced Quantity produced depends on inputs Inputs Land Labor Capital Inputs Production Function Output o Net Benefit Total Benefit Total Cost Production function o Q F K L K L o Suppose capital K is fixed at K 1 and just think about changes in labor o Now we can draw total product curve o Total product TP curve represents relationship between total output and the quantity of one of the inputs while holding the other fixed o Diminishing returns each additional unit of input adds less to TP than the last each new person is a little less productive than the one before o Marginal product of labor How much more we can produce if we hire one more worker MPL Change in Q Change in L o Realistic Total Product Curve Often realistic for TP to be upward sloping in the beginning but still for the most part diminishing returns to labor o Production Function Q K L describes our relationship between inputs and outputs Our goal to understand profits Profit TR Q K L TC Q K L Revenue is just price times quantity TR Q K L P Q K L Total cost consists of fixed cost and variable cost Fixed Cost cost of fixed inputs or inputs that firms cannot change in the short run Variable Cost Cost of variable inputs inputs that firms can change any time o VC entirely depends on Q o So TC Q K L FC VC Q K L o Total cost has to be a function of how much is being produced Example A pizza shop has to decide at the beginning of the year how many ovens to rent for 10 000 but can hire workers at any time for 20 000 Here ovens are a fixed cost and workers are a variable cost So if they rent one oven and hire two workers TC 10 000 2 20 000 o Here capital ovens was fixed and labor was variable o All inputs are variable in the long run o In the short run most things will be fixed o Total Cost Close relationship



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