ECON201 Midterm: Midterm 2.docx

• School: University of Waterloo
• Department: Economics
• Course: ECON201
• Professor: -

Document Summary

Franchise tax a amount of money a business pays for rights to own a business: when there are diminishing returns to a variable input the vc and cost curves become relatively steep as output increases so avc, mc and ac rise with output, because of the relationship with marginal and averages both the ac and avc curves fall when marginal cost is bellow them an rise when marginal cost is above them so the marginal cost cuts both these average costs curves at their minimum points. 3 approaches to minimize cost: lowest isocost rule pick the bundle of inputs where the lowest isocost line touches the isoquant, tangency rule pick the bundle of inputs where the isoquant is tangent to the isocost line, last dollar rule pick the bundle of inputs where the last dollar spent on one input gives as much extra output as the last dollar spent on any input.