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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
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Productivity Measures
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Fixed versus Variable Resources, Inputs, Factors Costs
Fixed: Cannot change (incr./decr.) in the short run Examples: Variable: Can change (incr./decr.) in the short run Costs Fixed: The cost of fixed resources Variable: The cost of variable resources FIXED VARIABLE
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Short Run v. Long Run Short Run Long Run
Period during which at least one resource is fixed Long Run Period during which all resources are variable
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Productivity Measures
Law of Diminishing Marginal Returns
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All workers (units of Labor) are equal.
Diminishing Marginal Returns specialization Assumption All workers (units of Labor) are equal. Diminishing Marginal Returns specialization
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AVC and MC should start at the same point at Q1
*AVC and MC should start at the same point at Q1 *ATC and AFC should start on the y-axis at the same point
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Answers to 3-3
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Productivity Measures
Law of Diminishing Marginal Returns
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Cost Measures
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Revenue v. Profit Revenue = money received by producer from sale of good Cost = money paid by producer to produce good Profit = Revenue – Cost
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P4 AP Econ Review LRE and SR profit Loss versus Shutdown Music Video
Practice FRQs Practice Chart (will post answers) Quiz- 13 multiple choice and 1 FRQ
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Profit Terms Accounting Profit = Economic 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
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Important Rules Produce Q where MR=MC Shutdown if
D/MR/AR/P drops below AVC
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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
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9-10pm Google Doc Chat Post questions and I will respond
Quiz- 13 multiple choice and 1 FRQ
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Stop Here for Tuesday’s Quiz
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Efficiency in PC Production Efficiency Allocative Efficiency
minimum ATC Allocative Efficiency p=MC
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Short Run v. Long Run Short Run Long Run
Some resources are fixed (factory size) Some resources are variable (labor) Long Run All resources are variable
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Long Run Supply Expanding production can drive up resource costs, drive down resource costs, or not change resource costs
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Draw a bunch of overlapping SRATCs representing an increasing # of plants in the LR.
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At which point does investment in a new plant become productively efficient?
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LONG RUN ONLY!
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Minimum Efficient Scale (MES)
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Minimum Efficient Scale (MES)
Minimum output at which lowest LRATC is achieved
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Minimum Efficient Scale (MES)
In perfect competition, is MES at a low or high Q?
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