Tutorial #8 400014969 [11/11/2024] A .

* the cost of additional unit of output

producing one

Marginal Cost function (MC) :

variable function
&
cost
Cy
: =

*
f for [sq ft of space]
substituting 200 . -

C(y)
=%
*
MC the derivative of
is ive
wrty

MC(y) =
dy =Lyo

Average cost function :

fixed Cost = 200 sq ft.

. X $1 = $200

TC(y) = 200 +
((y)
= 200 +
y
200

A((y) = +
C(y)
Y

= 200 + c
Y

200
y
=
+

Y 200

A((y
200 +
=

Taking the derivative :

y2 2003

zacy -20
=
=

2002
for
y =

*
solving y

200 +
200
y
-
=
=

"oo =

200
2002
1
y2 200 200
=
.
= .
or
 A B
.

If 200 :
y
=

A((y
200 +=
=

= 1 + 1

$2 per
game
= .

Y =
22 + 54 & = 10 units of output
*
for K
solving
10 = 22 + 54
*
rearranging
5 = 10 -
2L

K = 10-2L
S

C = wL + rk

= 21 + 3k

C= 27 + 3 10 -
22 = 21 + 30 -
6)
5 5

IOL#
24x10
= 30-bL
5 5

= IOL-bh+ 30 = y 4h + 38
5 5

Objective function : Constraint

C = wL + rK 24 + 5k = 10

= 2L + 3k

2 = 2) + 3k + 7/10 -
2 -
5k)

FOCs

2x 2x
- 2 = 0 => 2 =
2
xx 1
-
= =
= =

2 = 3 -
5x = 0 =3
54x =

82 =
10 -
21 -
5k = 0
2k
 A-B

= 0 1) Lx
q
.

(t))" (tL)314
q = 0 1 .

= 0 1 .
(t
+
2((2) ((3/4(314)
3/4
= 0 .
17 & / 112 (314

1 t(
12+ 3/4) 112
7314 3=
= 0 .

= 0 . 17514 >
12
2314

=
+S144
Since to >t for 71 the production function exhibits returns to scale because the
by t
,
increasing scaling inputs

the +914
increases output
by
.

* MPL take
,
the partial derivative of the production
0 16. 73/4 function (9) w r .+ 2
q
.

= -

MPL -1
[ y 0 015] [3- -]
09 3(x2(3(4
x =
000 =

0 1
.
=
. .
=

8L "4
= 0 . 073/"21-

1 = 100

MPL = 0 875
.
(1007 1-114

= 0 . 075 (10) - "4

.
1001 = 100

= 0 . 751-14

: The expression for MPL Is MPL = 0 75. L-14 op MPL = 0 75

.

L44

MPL = 0 .
75
L14

as Labour (11) increases MPL decreases .

The MPL the Labour because related to L" .

P
is
decreasing as amount of increases MPL o
inversely
As labour used, the additional output produced additional unit of labour becomes smaller.
more is
by each
 A-B

L =
0 where : L = units of labour hired
K
& = total comic books produced

k = comic books produced per unit of labour .

Fixed Cost 100 old X $1 $100

=
Jokes =

Variable Cost =
L Labour hired) x $2 = 27

TC(Q) = 100 + 24

Since L
=
+ ((q) 100 +
29
=

the total cost

* short run MC is
change in
resulting
from the production of additional unit of output.
+C(Q) one

20
= 100 +

*
MC(q)
21-K
= MC is constant 3 depends on the production rate h.

* short-run AC is calculated by dividing +C

by quantity of output

AC(Q) =
+

((q)

=
100
Q * this shows how
average
costs change with the level of output Q
.

100
=

firm (Varian Chapter 23)

Supply

the
* the MC is derived from the TC function by taking
derivative w.r.t to output (y)

MC(y)
dc(y) dy-sy +
=
= + 30y

MC(y) by= -

16y + 30
 A B
.

In thiscreate

AVC iscalculatedby taking Vanddividing

* it
by output (y) .

FC = 5

VC(y) y = -

sy + 30y

AVC(y VC(y =

Y
&

y
8y
+
30y
= -

Avc(y)
=
=

y
-

8y + 30

*
todetermineWhenAV s fallingorrangweneeda rivative
and

AVC(y) y2-8y
setting it to zero :
= + 30

dLAVD-2y-
8
2y = 0
-

S
zy
=

y 8/2 =

4
y
=

AVC is
falling when
y
< 4

Are is when 4
rising y
>

output if the than the minimum

* a competitive firm will supply zero price is less

variable . To find this we evaluate the AVC at the critical point 4

average cost
y
=
,

Avc(y)
=
=

y
-

8y + 30
AVC(4) = 42 -
814) + 30

= 16 -
32 + 38

= 14

The firm will output If the price

supply zero is less than $14·

* to do this ,
we need to find the output level where the price equals Mc , which also
equals the minimum Arc.

AVC is minimized at 4 3AVC(4) 14.

y
= =

MC(y) by" 16y + 30 = - This shows that at

y
= 4
,
the price
equals both AVC and MC

M((4) 3(4) 16(4) + 30 Thesmallest positive amount that the firm will
supply at 1 4 units.
any
-

price
=

= 48 -
64 + 30 = 14
 A-B

Wi = / (cost of lemous
per pol

W = 1
(wage rate per hour

C (Wi , Wa ,
y)
= 2 w
, "We
y31
**
2()"(1)
C( ,
1,
y) =

y3x
= 2 1 .

y3k
=

2y31
# the MC derivative of the cost function
is the w
a
MC(y)
d
=

(2y
= d
+
[f E 3
3 E 2)
.y
=
-
= =

= 2 ,

M((y) =

3y1

competitive market i determined where

function in a
* the
supply MC So set price equal to MC.

MC(y)
we
price equals .

p
=

p
by*solving fory
=

*
Y y
=

y
=

S(p)
p
=

* for
general prices w
, zw2 the cost function remains

Clu ,, Wa
,
y) = zw
,
"We' y
MC(w ,, "We y
way) =

d
MC (w, ,
W
<,
y) = zw ,

, Wuy
d
=
w

=
3 - LW , We y312 [
-

2 - 6-3-
 A B
.

set
*

p equal to MC

MC(w ,,
p
=
wall
P = 30 ,
!
We y for
solving y

zw , We
=
y

Y
=

zRu
S(p , w ,, W2l =
p2
9W , Wa