ECO101H1 Lecture Notes - Lecture 13: Diminishing Returns, Fixed Cost, Opportunity Cost
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Firms long run atc schedule: in short run, gm must hire more workers to increase output ( law of. Diminishing returns applies: in long run, gm can build more assembly plants as well as hire more workers. 2. 1 law of diminishing returns does not apply. 2. 2 mp does not necessarily fall after some point. Short run (there is a fixed factor of production): Afc ( = tfc / q) continuously falls as q increases. Avc ( = tvc / q) eventually rises as q increases since mc eventually rises as q increases (due to law of diminishing returns) Remember: in short run, there is a fixed factor. Lowest atc for producing each level of output (efficient production) May at first exhibit economies of scale and, later, diseconomies of scale (see text, figure 13. 6) In the long run, gm can vary assembly plants (capital) and number of workers (labour) Suppose gm decides, in long run, to produce 100,000 cars per year.
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