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Unit 3 Refer to activity packets for information not in notes.

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Presentation on theme: "Unit 3 Refer to activity packets for information not in notes."— Presentation transcript:

1 Unit 3 Refer to activity packets for information not in notes

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4 Productivity Measures

5 Productivity Measures
Law of Diminishing Marginal Returns Short Run Fixed Capital Variable Labor Long Run All resources are variable

6 Productivity Measures
Law of Diminishing Marginal Returns

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11 Cost Measures

12 Revenue v. Profit Revenue = money received from sale of good
Profit = Revenue - Cost

13 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

14 3 Rules Produce Q where MR=MC Charge P at Profit Maximizing Q
Shutdown if TR < TVC AR (P/MR) < AVC

15 Efficiency in PC PE AE Lowest ATC p/q where MR=MC
p/q where Quantity Demanded = Quantity Supplied

16 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

17 Long Run Supply Expanding production can drive up resource costs, drive down resource costs, or not change resource costs

18 Draw a bunch of overlapping SRATCs representing an increasing # of plants in the LR.

19 At which point does investment in a new plant become productively efficient?

20 LONG RUN ONLY!

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22 Minimum Efficient Scale (MES)

23 Minimum Efficient Scale (MES)
Minimum output at which lowest LRATC is achieved

24 Minimum Efficient Scale (MES)
In perfect competition, is MES at a low or high Q?


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