ECO100Y1 Lecture Notes - Lecture 8: Longrun, Marginal Product, Opportunity Cost
Document Summary
In short run, marginal product(mp) of the variable factor eventually declines. Short run(there is a fixed factor of production): atc is u-shaped. Long run(no fixed factor): atc is not necessary u-shaped. 1. in long run, gm can bulid more workers to increase output law of diminishing returns applies. 2. in long run, gm can bulid more assemble 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------>mc does not necessarily rise. 3. suppose firm doubles all input (a)output doubles(constant returns to scale)------>atc unchanged (b)output less than doubles (diseconomies of scale)------->atc increases (c)output more than doubles (economies of scale)------>atc falls. 4. assumes that costs of inputs------->such as wages for workers do not change when firm doubles all inputs(firms is a price taker) A firm produces its output with one variable factor(labour) and one fixed factor(capital). Mc of 1st unit: 200 (tc - tfc = 400 - 200 = mc)