Econ 1201 1st Edition Lecture 7Outline of Last Lecture –Behind Supply and DemandI. Graphical Analysis (Indifference Curves)II. Budget linesIII. Income and Substitution EffectOutline of Current Lecture – Production and CostsI. Explicit vs Implicit CostsII. Accounting vs Economic Profit III. The Short RunIV. Fixed Vs Variable CostsCurrent LectureI. Explicit vs Implicit CostsExplicit: actual cash payment (ex. price to buy jewelry that I will sell)Implicit: No payment (opportunity cost) (ex. opportunity cost of not renting out a space OR time)II. Accounting vs Economic ProfitAccounting: Total revenue – explicit costsEconomic Profit: Total Revenue – (explicit + implicit costs)III. Short Run: the period of time where at least one cost is fixedThese 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. # Friends Rooms moved Marginal Product1 2 22 5 33 6 14 6 05 5 -1** 1-2 = increasing marginal returns, 2 to 3 = diminishing marginal returns, 3-4 negative marginal returns **X Axis = number of friendsY Axis = Total ProductSlope of curve= marginal product IV. Fixed vs Variable CostFixed: the same no matter how much is producedVariable: costs that increase as production increasesMarginal Cost: The variable cost of the next unitVariable Cost: accumulation of marginal costs Q FC VC(Based off of Marginal Returns)TC MC AFC AVC ATC0 10 0 10 -------- Infinity Infinity Infinity1 10 5 15 5 10 5 152 10 8 18 3 5 4 93 10 12 22 4 3 4 7.334 10 20 30 8 2.5 5 7.5EQUATIONS:Average Fixed Cost (AFC) = FC/QAverage Variable Cost (AVC) = VC/QAverage Total Cost (ATC) = TC/Q ATC = AFC +
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