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    Diminishing Returns Set in Here TPP Maximum Output: Lecture 7 Notes Cost Curves

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    120219a
    This document provides lecture notes on cost curves. It discusses concepts like diminishing returns, total, average, and marginal costs. It also covers the Cobb-Douglas production function example and how in the long run all factors are variable and there are no fixed costs. The long-run average cost curve is a planning curve that can shift due to economies of scale, diminishing returns turning to returns to scale, and diseconomies of scale or agglomeration economies kicking in past the minimum point. It also discusses the concept of minimum efficient scale and economies of scope from producing multiple products.

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    Diminishing Returns Set in Here TPP Maximum Output: Lecture 7 Notes Cost Curves

    Uploaded by

    120219a
    14 views2 pages
    This document provides lecture notes on cost curves. It discusses concepts like diminishing returns, total, average, and marginal costs. It also covers the Cobb-Douglas production function example and how in the long run all factors are variable and there are no fixed costs. The long-run average cost curve is a planning curve that can shift due to economies of scale, diminishing returns turning to returns to scale, and diseconomies of scale or agglomeration economies kicking in past the minimum point. It also discusses the concept of minimum efficient scale and economies of scope from producing multiple products.

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    Elements of Economics

    Original Title

    Lecture 7 Notes

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    This document provides lecture notes on cost curves. It discusses concepts like diminishing returns, total, average, and marginal costs. It also covers the Cobb-Douglas production function example and how in the long run all factors are variable and there are no fixed costs. The long-run average cost curve is a planning curve that can shift due to economies of scale, diminishing returns turning to returns to scale, and diseconomies of scale or agglomeration economies kicking in past the minimum point. It also discusses the concept of minimum efficient scale and economies of scope from producing multiple products.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
    14 views2 pages

    Diminishing Returns Set in Here TPP Maximum Output: Lecture 7 Notes Cost Curves

    Uploaded by

    120219a
    This document provides lecture notes on cost curves. It discusses concepts like diminishing returns, total, average, and marginal costs. It also covers the Cobb-Douglas production function example and how in the long run all factors are variable and there are no fixed costs. The long-run average cost curve is a planning curve that can shift due to economies of scale, diminishing returns turning to returns to scale, and diseconomies of scale or agglomeration economies kicking in past the minimum point. It also discusses the concept of minimum efficient scale and economies of scope from producing multiple products.

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    LECTURE 7 NOTES

    COST CURVES

    Diminishing returns set in here


    TPP

    Maximum output

    v
    Diminishing
    returns
    Where APP is highest
    APP

    Maximum output

    efficient production

    MPP

    COSTS DEPEND ON:


    -

    Quantity of factors of production


    Efficiency in which theyre used
    Price

    TC = TFC +TVC
    AFC = TFC/Q
    AVC= TVC/Q
    MC = dTC/dQ

    COBB DOUGLAS FUNCTION EXAMPLE

    Q= 2K L

    = 0.5

    IF K = 25
    Q= 10L
    MPL = 5L-

    IN THE LONG RUN.


    -

    e.o.s

    All factors are variable


    No fixed costs
    The long run cost curve is a planning curve

    d.o.s

    WHY DOES THE LRAC SHIFT?


    -

    Business achieve economies of scale


    Diminishing returns to scale in short run turns to returns to scale in
    long run
    After minimum point on the LRAC you get diseconomies of scale
    Agglomeration economies

    MINIMUM EFFICIENT SCALE (MES)


    -

    If you produce at half the MES, you incur higher costs

    IF WE HAVE MULTIPLE PRODUCTS .


    -

    We have economies of scope


    We get benefits from inventory savings

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