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Title: Microeconomics Production cost, Maximizing profit and perfect competition
Description: These notes include illustrative words about the topics mentioned above in the title in Microeconomics with answered example and its very useful
Description: These notes include illustrative words about the topics mentioned above in the title in Microeconomics with answered example and its very useful
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Production, Cost and Perfect Competition Profits
Any firm’s main goal is to maximize profits
...
Total revenue is the selling price multiplied
by the quantity sold and total costs are the sum of the cost of all factors of production
used in producing the quantity sold
...
However all firms face similar decisions on how to produce
...
how to produce will directly affect costs and thus profits
...
There are two time-frame of production, the short run in which
the quantity of at least one factor of production is fixed, and the long run in which the
quantities of all factors of production
...
In the short run, firms cannot change certain factors of
production and thus much employ the variable factors on fixed factors to increase output
...
Short Run (SR) Production
We assume that there are only two factors of production for simplicity, which are labor
(L) and capital (K)
...
Total product (TP)
Total Product (TP) is the maximum amount of output a certain quantity of labor can
produce on the fixed capital
...
If we assume that there is one capital (a machine), and one worker is hired, then this will
worker can produce a certain output
...
Marginal product (MP)
The first worker increased output with a certain amount, then the second worker
increased output with some different amount
...
Marginal product is the change in total product due
to changing labor by one unit (hour or worker)
...
The increase in output of the second worker will
be higher then the first because of specialization and division of labor, but only at the
beginning
...
If we hire a third worker the output will increase but the increase in
output from the third will be less than from the second
...
This means at the beginning the
marginal product increases because of specialization and division of labor, then reaches a
maximum and then marginal product starts decreasing
...
Total Cost (TC)
To produce, the firm hires factors of production that it must pay its costs
...
In the short run, the firm has some
fixed and some variable factors of production
...
Total Fixed Costs (TFC)
The firm must employ all factors of production, if the quantities of some factors doesn’t
change with the quantity of output then the cost of those factors of production will be
fixed
Title: Microeconomics Production cost, Maximizing profit and perfect competition
Description: These notes include illustrative words about the topics mentioned above in the title in Microeconomics with answered example and its very useful
Description: These notes include illustrative words about the topics mentioned above in the title in Microeconomics with answered example and its very useful