Production Theory – Flashcards
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objects seem to be heavier on earth than the moon because _____
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earth has stronger gravitational pull than the moon
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Two Feature of Production Function (f'(x), f''(x))
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Increasing (f'(x)>0) and Concave (f''(x)<0)
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Maximization of Profits
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? = p*y - w*xSubject To: y = f(x)
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Value of Marginal Product, First Order Condition
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VMP = p*f'(x) = w
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Marginal Cost, First Order Condition
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MC (y*, w) = p
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Variable Cost
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VC (w,p) = w * f(y)
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AVC
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VC(w,p) / y
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MC
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d VC / y
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AC
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C (w,y) / y = F/y + VC/y
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MC = AC at:
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Minimum of AC, at AC=MC
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Optimal Production in Long Run
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y*(w,p) = 0 if P < P(-) AND y*(w,p) = y*(SR) if P > P(-) where P(-) is intersection of ATC and MC
