Econ 1201 1st Edition Lecture 8Outline of Last Lecture –Production and Costs I. Explicit vs Implicit CostsII. Accounting vs Economic Profit III. The Short RunIV. Fixed vs Variable CostsOutline of Current Lecture – Production and Costs (continued)I. Average Variable, Total and Fixed CostsII. Costs in the long runCurrent LectureI. Average Variable, Total, and Fixed CostsAVC = Average variable costATC = Average total cost (Average fixed cost plus average total cost)MC= Marginal Cost : The marginal cost curves downward then runs through the minimum points of AVC and ATC. The minimum of ATC should be slightly more towards the right than AVC**** NOTE: Make sure ATC and AVC get closer together as they curve towards the right, AND make sure the MC curve goes through both minimums! ****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.II. Long Run: all inputs are variableSmall Curves represent the SHORT RUN costs, and the blue curve that is tangent to thosecurves is the LONG RUN curve.Economies of Scale: when costs are going downExample: A manager can manage multiple screens at the same time. So, you are saving money and making more of a profit by paying ONE manager (fixed cost) and spreading it outover multiple resourcesDiseconomies of Scale: when costs are going up- once you need to start paying more to keep production runningExample of a fixed cost for movie theaters: paying for land (no matter if you are paying rent or not, there is still a cost because you have the option to rent it out or sell
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