ECON_3211_Notes_10-28-24

Overview of Economics 321 Notes

Assignment Deadlines

• HW 7: Due Wednesday, October 30

• Exam 2: Scheduled for November 6

• Quiz: Due Monday, October 28

• Reflection Assignment: Due October 28

Marginal Product and Total Costs

• Marginal Product (MP): The slope of the total production curve.

• Total Cost (TC): Calculation involving total fixed costs (TFC) and total variable costs (TVC).

  • Total Fixed Costs (TFC): Costs that are constant regardless of output (e.g., rent, capital costs).

  • Total Variable Costs (TVC): Costs that change with production levels (e.g., labor costs).

Production in Perfect Competition

• Short Run Assumptions:

  • Capital (K) is fixed.

  • Firms are price takers in a perfectly competitive market.

• Cost Formulas:

  • TC = wL + rK

    • where w = wage per labor, r = rent per unit of capital, L = labor units, K = capital units.

Cost Curves

• Average Total Cost (ATC), Average Variable Cost (AVC), and Average Fixed Cost (AFC):

  • ATC: U-shaped when plotted with output.

  • AVC: Typically U-shaped but approaches ATC as output (Q) increases.

  • AFC declines as output increases because it is spread over more units.

Marginal Cost and Product Relationships

• Marginal Cost (MC): Represents the additional cost of producing one more unit.

  • The MC curve intersects ATC and AVC at their minimum points.

• MC is inversely related to the Marginal Product of labor (MP).

Profit Maximization

• Profit maximization occurs when Marginal Revenue (MR) = Marginal Cost (MC).

• Conditions:

  • If MR > MC, the firm should increase production.

  • If MR < MC, the firm should decrease production.

• Total Revenue (TR) Curve: Linear for price-taker firms, with MR represented by the slope of the TR curve.

Revenue and Cost Analysis

• The position of the total cost curve intersects the total revenue curve at critical points, indicating profit levels.

• The distance between TR and TC curves indicates profit, with the largest profit occurring when the slopes are equal.