Transcript Unit 3 Notes (updated)

Unit 3a
• Refer to activity packets for information not in
notes.
• Pay close attention to the shape of the various
production/cost/revenue curves.
• Pay close attention to the relationship between
curves
• Master the ability to calculate cost and revenue
values from a variety of given information
Productivity Measures
Fixed versus Variable
• Resources, Inputs, Factors
– Fixed: Cannot change (incr./decr.) in the short run
• Examples:
– Variable: Can change (incr./decr.) in the short run FIXED
• Examples:
• Costs
– Fixed: The cost of fixed resources
– Variable: The cost of variable
resources
VARIABLE
Short Run v. Long Run
• Short Run
– Period during which at least one resource is
fixed
• Long Run
– Period during which all resources are variable
Productivity Measures
• Law of Diminishing Marginal Returns
Diminishing Marginal Returns
specializatio
n
• Assumption
• All workers
(units of Labor)
are equal.
Diminishing Marginal Returns
specializatio
n
*AVC and MC should start at
the same point at Q1
*ATC and AFC should start on
the y-axis at the same point
Answers to 3-3
Productivity Measures
• Law of Diminishing Marginal Returns
Cost Measures
Revenue v. Profit
• Revenue = money received by producer from
sale of good
• Cost = money paid by producer to produce
good
• Profit = Revenue – Cost
P4 AP Econ
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•
•
•
•
Review LRE and SR profit
Loss versus Shutdown
Music Video
Practice FRQs
Practice Chart (will post answers)
• Quiz- 13 multiple choice and 1 FRQ
Profit Terms
• Accounting Profit =
• Total Revenue – Total Explicit Cost
• Economic Profit =
• Total Revenue – (Total Explicit Cost + Total Implicit Cost)
• Π (uppercase Pi)- symbol for economic profit
• Normal Profit- occurs when Π = 0
Important Rules
• Produce Q where MR=MC
• Shutdown if
– D/MR/AR/P drops below AVC
Return to Long Run Equilibrium (PC)
• NO Barriers to Entry/Exit
• Short Run Economic Profits
– Firms Enter the Market in the LR
– Market Supply Shifts right
– Firm MR/AR/D shifts down to min. ATC
• Short Run Economic Losses
– Firms Exit the Market in the LR
– Market Supply Shifts left
– Firm MR/AR/D shifts up to min. ATC
9-10pm Google Doc Chat
• Post questions and I will respond
• Quiz- 13 multiple choice and 1 FRQ
Stop Here for Tuesday’s Quiz
Efficiency in PC
• Production Efficiency
– minimum ATC
• Allocative Efficiency
– p=MC
Short Run v. Long Run
• Short Run
– Some resources are fixed (factory size)
– Some resources are variable (labor)
• Long Run
– All resources are variable
Long Run Supply
• Expanding production can drive up
resource costs, drive down resource costs,
or not change resource costs
Draw a bunch of overlapping
SRATCs representing an
increasing # of plants in the LR.
At which point does investment
in a new plant become
productively efficient?
LONG RUN ONLY!
Minimum Efficient Scale (MES)
Minimum Efficient Scale (MES)
• Minimum output at which lowest LRATC is
achieved
Minimum Efficient Scale (MES)
• In perfect competition, is MES at a low or
high Q?