Economics 1021A/B Lecture 10: Chapter 11 Output and Costs

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: Nicholas Kanhert

Document Summary

The firm makes many decisions to achieve its main objective: profit maximization. All decisions can be placed in two time frames: Time frame in which the quantity of one or more resources used in production is fixed. For most firms, the capital, called the firm"s plant, is fixed in the short run. Other resources used by the firm (such as labour, raw materials, and energy) can be changed in the short run. Labour variable in the short run, and capital is fixed in the short run. The long run is a time frame in which the quantities of all resources including the plant size can be varied. A sunk cost is a cost incurred by the firm and cannot be changed. To increase output in the short run, a firm must increase the amount of labour employed. Three concepts describe the relationship between output and the quantity of labour employed: total product, marginal product, average product.