Producer Decision- Making Goal: maximize profit π=TR=TC Tc〓TFc+TVc=WL+rK ATCETC/Q MC=△(Tc/AQ
Producer Decision-Making: Goal: Maximize Profit = TR – TC –TC = TFC + TVC = wL + rK –ATC = TC / Q –MC = Δ(TC)/ΔQ
Recall: Short-Run Costs-Summary at Q=0.Vc=0, but Fc>0 a when MC is declining, ATC and Avc both decline at an increasing rate a when MC starts increasing, ATC and AVC may both be decreasing but at a decreasing rate Mc intersects avc and atc at their minimum, respectively
Recall: Short-Run Costs - Summary ◼ at Q=0, VC=0, but FC>0 ◼ when MC is declining, ATC and AVC both decline at an increasing rate ◼ when MC starts increasing, ATC and AVC may both be decreasing but at a decreasing rate ◼ MC intersects AVC and ATC at their minimum, respectively
The Relationship Between the Average Total Cost and the marginal cost Curves Marginal average If marginal cost is MC costs (per unit) above average total MC ATO cost, average total cost is increasing A M MCL If marginal cost is below average total cost, average total cost is decreasing. Quantit
The Relationship Between the Average Total Cost and the Marginal Cost Curves
the four curves together Marginal, average costs of boots (per pa S250 MC 200 150 ATC AVC 100 50 ◆AFC 4 5 6 7 910 Quantity of boots(pairs) Minimum cost output
the four curves together:
More realistic cost curves Marginal average ATC costs (per unit) MC AVC
More Realistic Cost Curves