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

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

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!

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?