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UI ECON 1100 - Experiment, Economic & Accounting Costs
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ECON 1100 1nd Edition Lecture 17 Outline of Last Lecture I. FutureII. ExperimentOutline of Current Lecture (Oct 18)I.Cross-Price ElasticityII.Experiment AnalysisCurrent LectureI. Cross-Price Elasticity Cross-price elasticity: how responsive is P of X to change in Q of Y (other good)% change Qx divided by % change PyFor a lot of product pairs or comparisons they cross-price elasticity may be 0 because the 2 products are not at all related such as gas & applesEx: parking price increases therefore more people will take the bus (not everyone, not always)Py increases & Qx increases then substitutes; cross-price E > 0Py increases & Qx decreases then complements; cross-price E < 0Ex. $0.50 increases to $1 and 80 trips increases to 100 trips = use midpoint formula to determine elasticityUnderstand WHAT IS GOING ON, rather than memorizeII. Experiment AnalysisUsed new set of workers so they don’t get more practice at folding the planes, therefore skewing the dataVariable input: labor (# workers), raw materials (paper)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.Fixed input: capital (tools, structures) (in experiment: pen, workspace, folder)Short-run: @ least 1 input is fixed; use what you’ve got until you get new/moreLong-run: all inputs are variableLong vs. short-run = no set amount of time determines one from the others, this differs within each industryExpansion requires timeEx. Ordering new trucks: need time to order, for order to arrive, paint company colors, apply license, install radio, etcDifferences between coal power plant vs. nuclear power plant6 years vs. 12 years Time measured from time if initiation to turning on of switchCapital longest to acquire#WorkersOutputOutput/workerChange output/changeworkers0 0 0 02 2 12/2=14 9 2.257/2=3.58 16 27/4=1.75Observations: 0 workers = 0 outputIncrease workers = increase outputToo many people = less output therefore companiesdownsizeLower cost & increase salesMarginal product of labor: extra labor (output) for each extra worker (input)Change in output divided by change in workersAverage product of labor = Q/LMarginal product = slope -> change Q/ change wLaw of diminishing return: in short fun, @ same level input, MP of variable input starts to decreaseAvg. Product of labor starts small, gets steeper, then starts toslowly fallOutline of Last Lecture III. Cross-Price ElasticityIV. Experiment AnalysisOutline of Current Lecture (Oct 21)III.Accounting & Economic ProfitCurrent LectureI. Accounting & Economic ProfitWord ‘profit’ used in 2 ways Accounting & economicAccounting profit: Revenue – costs (explicit)Explicit = ‘write check for’ ; pay for out of own fundsWorker’s wagesMaterials costInterest or debtEnergyWho gets profit?2 formsDividends or retained earningsEconomic profit: Revenue – explicit costs – implicit costsImplicit = opportunity cost of: 1. Company owned assets 2. Owner’s time3. Financial capitalCompany owned assets: warehouse, trucks, landOwner’s time: more true of small businesses; time working vs. doing something differentor working somewhere elseInvestor’s capital: people invest money expecting to later getMore back; what to pay investor of next project to get next thing but with little riskNormal rate of return is next best thingSome investment riskier than othersEconomic costs ≥ accounting costsEconomic profit ≥ accounting profit0 economic profit is sustainable0 accounting profit is not


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UI ECON 1100 - Experiment, Economic & Accounting Costs

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