Edited with the trial version of Foxit Advanced PDF Editor To remove this notice visit www foxitsoftware com shopping ECO2030 nd 1 Edition Lecture 30 Outline of Last Lecture I The Costs of Production Outline of Current Lecture II Typical Cost Curves III Competitive Markets IV Profit Maximizing Current Lecture AFC always decrease as quantity increases AVC increases as quantity increases Marginal Cost increases as quantity increases MC and the ATC always cross at the ATC curves lowest point This is because anything lower than the average will bring the cost down and vice versa think about the GPA example When MC ATC the average Total Cost is Falling When MC ATC the average total cost is rising Typical Cost Curves MC eventually rises with the quantity of the output because of Diminishing Marginal Product For most firms MC decreases at first before rising with quantity output that s because additional workers can increase productivity to a certain point fill assembly lines etc 3 Key things 1 Marginal cost rises with the quantity of output 2 The average total cost curve is U shaped 3 The marginal cost curve crosses the average total cost curve at the minimum of average total cost Costs in the Short and Long Run Fixed in the short run Firms have less flexibility Variable in the long run firms have more flexibility 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 Image source 2011 Cengage Learning Review image ATC decreases as workers specialize and improve in the beginning this levels off and then ATC increases in the long run due to distribution and management issues costs Short run economies of scale from Specialization Long run diseconomies of scales from increasing coordination problems As a result firms try to duplicate themselves Build another firm Chap 14 Firms in competitive markets Competitive market is many buyers and sellers Trading Identical products Each buyer and seller are price takers Firms have to except price or go out of business Firms can easily exit and enter the market Revenue of a competitive firm Total Revenue Price x Quantity So Marginal Revenue Price To Maximize profit total revenue minus total cost Profit Total Revenue Total Cost Need to know difference between Revenue and Profit Average Revenue Total revenue divided by the quantity sold Price Marginal Revenue Average Revenue Marginal Revenue the change in total revenue from an additional unit sold MC curve is upward sloping because of diminishing marginal product Rules for maximizing profit want to produce quantity where total revenue total costs is biggest If MR MC should increase production If the other way round should decrease production If MR MC profit is maximized Price Average Revenue Marginal Revenue good to remember this you don t produce at Q1 because your profit is not maximized you are not reaching full potential
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