week 9 : cost

TUEDAY marginal cost = change in TC/change inQ          change in Q = MP fixed + Variable = total cost Marginal revenue is the benefit from one additional unit MR=MC is maximum  

THURSDAY AFC (FC/Q), AVC (VC/Q), ATC (TC/Q) helps to put in a graph  

AFC is always decreasing MC will always eventually increase because of the law of diminishing marginal returns AVC and ATC will start to increase because MC will eventually be higher than the the average and drag it up MC intersects AVC and ATC at their minimum points

LONG RUN   price of labor = w (wage) price of capital = r (rent)   optimal ratio of labor and capital is  MPL/w  =  MPK/r        additional production from spending $1 on labor is equal to the additional production from spending $1 on capital                      --> similar equation to maximizing utility equation, this is the firm version       if not equal, spend more money on the side with a higher number and spend less on the side with smaller number

FIXED COST vs. SUNK COST   Fixed cost: cost that don't depend on quantity of output           rent, salaries    Sunk costs: cost that has already occurred and cannot be changed or recovered          last year's rent                   SUNK COSTS SHOULDN"T AFFECT OUR DECISION