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OK. Now that we know about (1)
specialization and teamwork, (2) getting crowded, and (3)
overcrowded, from lesson 7a, that is, we know why the TP
curve has the shape that it does, we are ready to look at
the graphs that we will be using most in this class: the
cost curves (both total and average). Remember, we are
studying economic costs so that we can calculate the MC -
the extra costs of producing one more unit of output. In
lessons 8/9, 10, and 11 we will combine MC with MR (the
extra benefits of producing and selling one more unit of
output ) so that we can find the profit maximizing quantity
of output, or the quantity where MR=MC. This is WHAT WE
GET.
The costs curves show us how costs
change with output. The production function in lesson 7a
showed us how output changes when we add more resources.
They are related. We studied the production function so that
we could learn about (1) specialization and teamwork, (2)
getting crowded, and (3) overcrowded, because these concepts
will help us understand the shapes of the cost curves.
Remember: whenever we learn a new graph we must understand
it shape (For all graphs: DEFINE, DRAW, DESCRIBE its
shape).
In this lesson we will be looking at
the SHORT RUN COST CURVES. We studied the definition of
"short run" in lesson 4b. It doesn't really have much to do
with time. The short run in some industries is longer than
the long run in other industries. In the short run the
quantity of at least one resource is fixed, does not change.
We will usually assume that the number of factories or the
size of the factory does not change. So in the short run we
are adding more resources to an EXISTING factory . . . and
it may get crowded or overcrowded. We will look at the long
run costs (when we can change the number of factories or the
size of the factories) in the next lesson, 7c.
Finally, we will be looking at three
types of costs: fixed, variable, and total (total equals
fixed plus variable), and three "families" of costs: total,
average, and marginal. By the end of this lesson you should
be able to correctly Calculate, Define, Draw, and Describe
the shapes of: TFC, TVC, TC, AFC, AVC, ATC, and MC. (For all
graphs: DEFINE, DRAW, DESCRIBE its shape).
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