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ECON 102.004 Principles of Microeconomics

2. Lecture Outline. Production and types of costsRelationship between marginal and average costsShort run and long run cost curvesCost minimization. 3. Maximizing Profits. The firm's goal is to maximize profits.This determines the firm's choice of what, how, and how much to produce.Firms invest

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ECON 102.004 Principles of Microeconomics

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    1. 1 ECON 102.004 – Principles of Microeconomics S&W, Chapter 6 The Firm’s Costs Instructor: Mehmet S. Tosun, Ph.D. Department of Economics University of Nevada, Reno

    2. 2 Lecture Outline Production and types of costs Relationship between marginal and average costs Short run and long run cost curves Cost minimization

    3. 3 Maximizing Profits The firm’s goal is to maximize profits. This determines the firm’s choice of what, how, and how much to produce. Firms invest in long-run projects if they expect the results to be worth the expenditure. Firms may have other objectives besides profits, but firms that neglect profits too much go bankrupt.

    4. 4 Income and Costs The firm's income is total revenue TR = pQ. The firm's profits are total revenue minus costs = TR - costs =pQ - costs. The firm's costs are the money it spends. Firms try to minimize costs without adversely affecting the quality of their products. Firms vary the mix of inputs they use until they find the lowest-cost way to produce their product.

    5. 5 Production with One Variable Input A farmer uses a fixed amount of land, machinery, and fertilizer. Only labor varies. The production function relates the input to the output. Increases in labor increase output but at a decreasing rate.

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