pollev.com/chrismakler
In the expression for the short-run cost function
what are the units of \(w\)?
Christopher Makler
Stanford University Department of Economics
Econ 50 : Lecture 16
Long Run (can vary both labor and capital)
Short Run with Capital Fixed at \(\overline K \)
Long Run (can vary both labor and capital)
Short Run with Capital Fixed at \(\overline K \)
Let's fix \(w= 8\), \(r = 2\), and \(\overline K =32\)
What conclusions can we draw from this?
Fixed Costs
Variable Costs
Average Fixed Costs (AFC)
Average Variable Costs (AVC)
Fixed Costs
Variable Costs
(marginal cost is the marginal variable cost)
pollev.com/chrismakler
Suppose q* is the quantity
for which ATC is lowest.
Which of the following must be true?
(Assume that ATC and MC are continuous functions of q.)
(a) MC also reaches its minimum at q*
(b) MC reaches its maximum at q*
(c) MC and ATC are equal at q*
Returns to Scale
Has to do with the production function
Economies of Scale
Has to do with cost curves
Increasing Returns to Scale:
double input => more than double output
Decreasing Returns to Scale:
double input => less than double output
Always deals with the long run
Can occur in both the long run and short run
Economies of Scale:
increasing output lowers average costs
Diseconomies of Scale:
increasing output raises average costs