ECON 1101 1st Edition Lecture 23Outline of Last Lecture II. Income ChangeIII. What happens to optimal consumption bundle if the price changes?a. Income effectb. Substitution effectOutline of Current Lecture IV. Consumer TheoryV. Theory of the Firma. Costsb. U Shaped Average Costc. Constant Return to Scaled. Economics of Scalee. Short-run supply of a firmCurrent LecturePrice of a good goes upas If you are poorer you buy less/get less Optimal consumption bundle changesA + B on the same indifference curve (ALWAYS!!!)Labor Supplywhen the price goes up there is a decrease in incomeIncome effect:Leisure is a normal good, when you have more money you spend more on leisure.Example: Lottery winners tend to work less after they win the lottery.When the wage increases, so does leisure.Wage Increase = substitution effectOpportunity cost of leisure increasesConsume less leisureNet effect? income effect predominates. People enjoy leisure time.Fixed Cost: (ex: $4 to run a factory no matter what you make)A cost you have to pay no matter the quantity producedThese 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.Variable input (cost): (example = labor) Amount you have to pay based on how much you produce…example would be labor or materials.Diminishing marginal returnsMarginal = additional Total cost = fixed cost + variable costaverage Fixed cost = fixed cost / quaitityaverage variable cost = variable cost / quantitymarginal cost: change in total cost from increasing
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