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Extreme Inflation and Its Economic Impact

Main Idea:

The content discusses the multifaceted nature of inflation, its effects on various economic actors, its social costs and benefits, and the role of central banks in managing it. It also delves into economic fluctuations, macroeconomic policies, international trade, and market structures.

Key Concepts:

• Inflation: A sustained increase in the general price level, often characterized by prices doubling within three years.
• Relative Prices: The prices of goods and services in relation to each other. Inflation doesn't always mean all prices and wages move together, leading to changes in relative prices.
• Winners and Losers of Inflation:
  • Winners: Those who benefit from unexpected gains, such as homeowners with fixed-rate mortgages or owners of firms with non-indexed pensions.
  • Losers: Those who suffer unexpected losses, like banks receiving fixed-rate mortgage payments, retirees with non-indexed pensions, or workers unable to adjust nominal wages.
• Social Costs of Inflation:
  • Menu Costs: The logistical costs of frequently updating prices (e.g., reprinting menus).
  • Counterproductive Policies: Inflation can lead to policies like price controls, which negatively impact business profits and activities.
• Social Benefits of Inflation:
  • Seigniorage: Government revenue generated from printing currency. This occurs when the value of money decreases due to inflation, effectively acting as an "inflation tax."
  • Economic Stimulation: Low and stable inflation can stimulate economic activity by influencing nominal wages, labor demand, income, and the demand for goods and services.

Central Banks and Monetary Policy:

• Role of Central Banks (e.g., Federal Reserve):
  • Control key interest rates (monetary policy rate).
  • Indirectly control money supply.
  • Regulate and monitor financial institutions.
  • Maintain low and stable inflation.
  • Promote maximum sustainable employment (long-run full employment - LFE).
  • Maintain currency stability.
  • Promote financial system stability.
• Monetary Policy Tools:
  • Open Market Operations: Buying or selling government bonds to influence bank reserves and liquidity.
    • Open Market Purchase: Increases liquidity by injecting reserves into the banking system.
    • Open Market Sale: Decreases liquidity by withdrawing reserves.
  • Reserve Requirements: The portion of deposits banks must hold at the central bank.
  • Interest on Reserves: The interest rate the central bank pays on reserves held by commercial banks.
• Federal Funds Market: The market where banks lend reserves to one another overnight. The federal funds rate is influenced by the policy interest rate.
• Instrument-Choice Problem: Central banks face a trade-off between controlling the quantity of reserves and targeting the federal funds rate, as shifts in the demand for reserves can cause fluctuations in the rate if reserves are fixed. Typically, the Fed targets the federal funds rate.

Economic Fluctuations (Business Cycles):

• Definition: Short-run changes in the growth of GDP.
• Key Metrics:
  • Trend GDP (Potential GDP): The long-term output level achievable under stable prices and full employment.
  • Output Gap: The deviation of an economy's real GDP from its potential GDP ($Y - Y^*$).
• Phases:
  • Recession: Negative economic growth.
  • Expansion: Positive economic growth, occurring between recessions.
• Characteristics:
  • Co-movement: Variables like consumption, investment, and employment move positively with real GDP, while unemployment moves negatively.
  • Limited Predictability: Recessions and expansions do not follow a predictable pattern.
  • Persistence: Economic growth rates tend to persist.
• Shocks: Unexpected events that trigger economic fluctuations, such as shifts in labor demand.
• Sources of Fluctuations:
  • Real Business Cycle Theory: Driven by changes in productivity and technology.
  • Keynesian Theory: Driven by business and consumer expectations and sentiment.
  • Financial and Monetary Theory: Driven by changes in prices and interest rates.
• Downward Wage Rigidity: Wages may not fall easily during economic contractions, amplifying unemployment.
• Economic Recovery: Factors like inventory rebuilding, increased consumer spending, firm acquisitions, technological advances, and financial intermediation contribute to recovery.

Macroeconomic Policy:

• Countercyclical Policy: Policies aimed at reducing the intensity of economic fluctuations and smoothing growth rates.
  • Expansionary Policy: Used during recessions to reduce unemployment and expand economic activity.
  • Contractionary Policy: Used during economic overheating to slow down inflation.
• Countercyclical Monetary Policy:
  • Uses the Fisher Equation ($r = i - \pi^e$) to influence real interest rates ($r$) by adjusting nominal interest rates ($i$), assuming expected inflation ($\pi^e$) is stable.
  • Expansionary: Open market purchases to lower interest rates, encouraging borrowing, investment, consumption, and output, thereby reducing unemployment.
  • Contractionary: Open market sales to raise interest rates, discouraging borrowing and reducing output, thereby curbing inflation.
  • Zero Lower Bound (ZLB): The constraint that policy interest rates typically cannot go below zero, limiting the effectiveness of monetary policy during severe downturns or deflation.
  • Taylor Rule: A guideline for setting policy interest rates based on inflation deviations from the target and output gaps.
• Countercyclical Fiscal Policy: Uses government spending and taxes to manage economic fluctuations.
  • Automatic Stabilizers: Programs like unemployment insurance that automatically offset economic fluctuations.
  • Discretionary Policy: Deliberate government actions (e.g., stimulus packages).
  • Government Expenditure Multiplier: The impact of government spending changes on real GDP. Critics emphasize "crowding out," where increased government borrowing raises interest rates and displaces private spending.
• IS-LM Model: Illustrates the interaction between the goods market (IS curve) and the money market (LM curve) to determine output and interest rates. Expansionary monetary policy shifts the LM curve down, while expansionary fiscal policy shifts the IS curve partially back.

International Trade and Open-Economy Macroeconomics:

• Production Possibilities Curve (PPC): Shows the maximum production of one good given the production of another. Its slope represents the opportunity cost.
• Absolute Advantage: The ability to produce more output than others with the same resources.
• Comparative Advantage: The ability to produce at a lower opportunity cost than others. Specialization based on comparative advantage allows for increased total production and consumption beyond the PPC.
• Terms of Trade: The "price" of one good in terms of another, determining the benefits of trade.
• Determinants of Trade Volume: Factors include population, GDP, distance, tariffs, exchange rates, trade agreements, and border infrastructure.
• Arguments Against Free Trade: Concerns about over-reliance, cultural protection, environmental issues ("pollution havens"), and the "infant industry" argument.
• Trade Barriers:
  • Tariffs: Taxes on imports, leading to higher prices, increased producer surplus, decreased consumer surplus, and deadweight loss.
  • Quotas: Limits on the quantity of imports.
  • Tariff Rate Quotas (TRQ): Lower tariffs for a certain volume of imports, with higher tariffs beyond that volume.
• International Trade Accounting:
  • Current Account: Records trade in goods and services, net factor payments (income from assets abroad), and net transfers.
  • Financial Account: Records flows of assets (investments).
  • The current and financial accounts typically offset each other (Current Account + Financial Account = 0).
• Exchange Rates:
  • Nominal Exchange Rate: The price of one currency in terms of another.
  • Real Exchange Rate: The relative price of domestic and foreign goods and services.
  • Exchange Rate Regimes: Flexible, fixed, and managed systems.
  • Foreign Exchange Market: Where currencies are traded. Demand and supply dynamics determine exchange rates.
• Trade, Technology Transfer, and Economic Growth: Technology transfer, often facilitated by Foreign Direct Investment (FDI), is crucial for growth in less advanced economies.
• Price Controls:
  • Price Ceilings: Maximum legal prices (e.g., rent control).
  • Price Floors: Minimum legal prices (e.g., minimum wage).
  • These interventions can lead to shortages or surpluses and create deadweight loss, representing an equity-efficiency trade-off.

Market Structures:

• Perfect Competition:
  • Homogenous products, many price-taking firms, free entry/exit.
  • Firms maximize profit where Price = Marginal Cost (MC) = Marginal Revenue (MR).
  • Short-Run: Firms can make profits, losses, or break even (Price = ATC). Shut-down condition: Price < Average Variable Cost (AVC).
  • Long-Run: Firms enter if profitable, exit if losing money, leading to Price = Minimum Average Total Cost (ATC), resulting in zero economic profit.
• Monopoly:
  • Single seller, unique product with no close substitutes, price-maker.
  • Barriers to entry (patents, government licenses, natural monopoly).
  • Profit maximization where MR = MC. Produces less output and charges a higher price than in perfect competition, leading to deadweight loss.
  • Price Discrimination: Charging different prices to different customers to capture consumer surplus and restore efficiency (e.g., first-degree, second-degree, third-degree).
  • Regulation: Governments may regulate natural monopolies (e.g., via MC or ATC pricing) or non-natural monopolies (e.g., break-ups, penalties).
• Monopolistic Competition:
  • Many firms, differentiated products, free entry/exit.
  • Firms face downward-sloping demand curves and choose output where MR = MC, setting price based on the demand curve.
  • Short-Run: Can earn profits or losses.
  • Long-Run: Entry drives profits to zero (Price = ATC), but firms do not produce at minimum ATC, leading to inefficiency but also product variety.
• Oligopoly: Few dominant firms, interdependent decision-making.

Macroeconomic Aggregates and Measurement:

• Microeconomics vs. Macroeconomics: Micro focuses on individual decisions, while macro studies the economy as a whole.
• Positive vs. Normative Economics: Positive economics describes "what is," while normative economics prescribes "what should be."
• Scarcity: Unlimited wants versus limited resources.
• Optimization: Making the best choice given constraints.
• Circular Flow Model: Illustrates the flow of income, expenditure, and production between households and firms.
• Gross Domestic Product (GDP): The market value of all final goods and services produced within an economy in a given period.
  • Expenditure Approach: $Y = C + I + G + NX$.
  • Income Approach: GDP = Wages + Interest + Taxes + Depreciation + Profits.
  • Value-Added Approach: Sum of value added at each stage of production.
• Measuring Economic Well-being: GDP per capita is a common measure, but indices like the Human Development Index (HDI) provide a broader perspective.
• Inflation Measurement:
  • Consumer Price Index (CPI): Tracks the cost of a fixed basket of goods and services. Subject to substitution bias, new goods bias, and quality improvements.
  • GDP Deflator: Measures the price level of all final goods and services produced domestically.
• Indexation: Adjusting nominal values for inflation to reflect real changes.

Productivity and Economic Growth:

• Productivity: The value of goods and services generated per hour of work.
• Determinants of Productivity:
  • Physical Capital (K): Machinery, structures.
  • Human Capital (H): Skills, education, health.
  • Technology (A): Knowledge and production processes.
• Aggregate Production Function: $Y = A \times F(K, H)$.
• Sustained Growth: Primarily driven by technological progress, as diminishing returns to capital and human capital limit growth from these factors alone.
• Solow-Swan Growth Model: Explains how savings, depreciation, population growth, and technology interact to determine steady-state levels of capital and output per worker.
  • Steady State: A long-run equilibrium where capital per worker is constant.
  • Golden Rule: The savings rate that maximizes consumption per worker.
  • Higher population growth leads to lower steady-state income per worker.
• Policies for Economic Growth: Encouraging savings and investment, promoting education and health, maintaining political stability (rule of law, property rights), and fostering research and development.
• Theories on Global Development Differences: Geographical, Cultural, and Institutional hypotheses attempt to explain disparities in prosperity.

Labor Markets:

• Employment and Unemployment:
  • Labor Force: Employed + Unemployed (actively seeking work).
  • Unemployment Rate: (Unemployed / Labor Force) x 100%.
  • Participation Rate: (Labor Force / Potential Workers) x 100%.
• Demand for Labor: Derived demand, driven by firms' profit maximization (Value of Marginal Product of Labor = Wage). Shifts due to changes in product demand, productivity, input prices, and technology.
• Supply of Labor: Driven by households' utility maximization. Responds to wages, opportunity costs, tastes, population, and demographics.
• Market Equilibrium: Wages adjust to clear the market, theoretically leading to full employment (no cyclical or structural unemployment).
• Types of Unemployment:
  • Cyclical: Fluctuations around the natural rate due to business cycles.
  • Frictional: Short-term, due to imperfect information and job search time.
  • Structural: Long-term, due to factors like unions, downward wage rigidity, minimum wages, and skill mismatches.
• Wage Rigidity: Factors like unions, minimum wages, and efficiency wages can prevent wages from falling during downturns, contributing to structural unemployment.
• Bargaining: The Nash Bargaining Model describes how wages are determined by the surplus generated and the bargaining power of employers and employees. Unions can increase worker bargaining power.

Credit Markets:

• Function: Channel savings into investment.
• Demand for Credit: Driven by borrowers (firms, households) seeking funds for investment or consumption. Influenced by real interest rates, business opportunities, and government policy.
• Supply of Credit: Provided by lenders (savers). Influenced by real interest rates, saving motives (uncertainty, retirement plans), and firm cash flows.
• Equilibrium: Determined by the intersection of credit demand and supply, establishing an equilibrium real interest rate and quantity of credit.
• Banks and Financial Intermediation: Link borrowers and lenders, manage risk, transform maturities, and identify lending opportunities.

Monetary Policy and Short-Run Fluctuations (Revisited):

• Money: A medium of exchange, store of value, and unit of account.
• Money Supply (M): Includes currency, checking accounts (M1), and savings accounts (M2).
• Quantity Theory of Money: $M \times V = P \times Y$. Assumes velocity ($V$) is relatively stable in the long run, implying that changes in the money supply ($M$) directly impact the price level ($P$) and inflation. Central banks control $M$ to influence inflation.

Government and the Economy:

• Market Efficiency: Markets tend to allocate resources efficiently when self-interested individuals maximize their own well-being, leading to maximized social surplus (Consumer Surplus + Producer Surplus). Pareto efficiency occurs when no one can be made better off without making someone else worse off.
• Market Failures: Situations where markets fail to achieve efficient outcomes.
  • Externalities: Spillover effects of economic activities.
    • Negative Externalities (e.g., pollution): Lead to overproduction. Solutions include Pigouvian taxes or tradable permits.
    • Positive Externalities (e.g., education): Lead to underproduction. Solutions include subsidies or government provision.
    • Pecuniary Externalities: Affect others through market prices.
  • Public Goods: Non-rivalrous and non-excludable (e.g., national defense). Prone to the free-rider problem; often provided or funded by the government.
  • Common Pool Resources: Rivalrous but non-excludable (e.g., fisheries). Prone to the tragedy of the commons; require regulation or private ownership.
• Government Intervention:
  • Price Controls: Can lead to deadweight loss.
  • Taxes and Subsidies: Can be used to internalize externalities and address market failures. Tax incidence depends on price elasticities.
  • Regulation: Direct controls or market-based policies.
• Equity vs. Efficiency: A fundamental trade-off where policies promoting fairness may reduce overall economic efficiency, and vice versa. Governments often intervene to address outcomes considered inequitable by the market.
• Consumer Sovereignty vs. Paternalism: Debates about whether individuals always know what's best for them versus the government guiding choices.

Firms and Production Theory:

• Perfect Competition: Firms are price-takers, producing where Price = MC. Long-run equilibrium occurs at minimum ATC.
• Costs: Fixed, variable, total, marginal, average. Economic profit considers both explicit and implicit (opportunity) costs.
• Producer Surplus: Total revenue minus variable cost.
• Elasticity: Measures the responsiveness of one variable to changes in another (e.g., price elasticity of demand/supply, income elasticity, cross-price elasticity).
• Returns to Scale: How output changes with proportional increases in all inputs (constant, increasing, decreasing).
• Economies of Scope: Cost savings from producing multiple goods.
• Mergers: Can be driven by economies of scale or scope.
• Long-Run Equilibrium: Firms enter/exit until economic profits are zero, and firms produce at the minimum of their long-run average cost curve.

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Summary of Long Run Costs and Perfect Competition

This document outlines key concepts related to long-run production costs, returns to scale, and the characteristics of firms operating in a perfectly competitive market.

Long Run Production Costs

• All Inputs Variable: In the long run, all inputs, including capital (K), are considered variable.
• Long Run Average Total Cost (ATCLR):
  • ATCLR is identical to Long Run Average Variable Cost (AVCLR) because there are no fixed costs in the long run.
  • ATCLR represents the locus of minima of short-run Average Total Cost (ATC) curves for different levels of capital.
• Long Run Marginal Cost (MCLR):
  • MCLR is derived from the change in ATCLR with respect to output (ΔATCLR / Δq).
  • If MCLR < ATCLR, then ATCLR is decreasing.
  • If MCLR > ATCLR, then ATCLR is increasing.
  • The MCLR curve intersects the ATCLR curve at its minimum point.

Thinking on the Margin (Long Run)

• Price Taker: Firms are price-takers, meaning market price (p) equals marginal revenue (MR).
• Profit Maximization: Firms maximize profits by producing where price (p) equals Long Run Marginal Cost (MCLR).
• Break-Even and Shutdown Points: In the long run, the break-even point and the shutdown point are the same, occurring at the minimum AVCLR (which is also the minimum ATCLR).

Returns to Scale

Returns to scale is a long-run production concept that describes how output changes in response to a proportional increase in all inputs.

• Constant Returns to Scale: A proportional increase in all inputs leads to the same percentage increase in output.
  • Example: Doubling inputs leads to doubling output.
• Increasing Returns to Scale: A proportional increase in all inputs leads to a larger percentage increase in output.
  • Example: Doubling inputs leads to more than doubling output.
• Decreasing Returns to Scale: A proportional increase in all inputs leads to a smaller percentage increase in output.
  • Example: Doubling inputs leads to less than doubling output.

Returns to Scale and Long Run Costs

Returns to scale also relate to long-run average costs:

• Economies of Scale: Characterized by a decreasing ATCLR curve. As production increases, average costs fall. This is associated with increasing returns from increasing production.
• Diseconomies of Scale: Characterized by an increasing ATCLR curve. As production increases, average costs rise. This is associated with decreasing returns from increasing production.

The Typical Firm in the Long Run

A typical firm experiences:

• Economies of Scale at low output levels.
• Constant Returns to Scale at moderate output levels.
• Diseconomies of Scale at high production levels.
• Minimum Efficient Scale: The smallest production level at which ATCLR is minimized.

Economies of Scope

• A related but distinct concept where Average Total Cost (ATC) declines as the firm produces different goods.

Reasons for Mergers

Firms merge for several reasons:

• To achieve Economies of Scale.
• To achieve Economies of Scope.
• To effectively combine production technologies.

The Long Run Break-Even Point

• A firm breaks even in the long run when the market price equals the minimum ATCLR.
• At this point, firms earn zero economic profit (normal economic profit), though accounting profit is positive.
• Firms adjust their capital to ensure the minimum Short Run ATC (ATCSR) aligns with the minimum ATCLR.

Market Dynamics in Perfect Competition (Long Run)

• Firm Level: Firms choose their output level. In the long run, they can also adjust their capital input.
• Market Level: The number of firms in the market can vary.
• Assumptions:
  1. All firms are homogeneous (identical cost structures).
  2. There is a pool of potential, homogeneous firms.
• Entry and Exit:
  • Entry: Firms enter when there are positive short-run profits (Price > minimum ATC). Entry increases market supply, driving down the price until profits are zero.
  • Exit: Firms exit when making negative profits (Price < minimum ATC). Exit decreases market supply, driving up the price until profits are no longer negative.
• Long Run Equilibrium: Achieved when firms have no incentive to enter or exit. This occurs when Price = minimum ATCLR.
  • Benefits: Goods are produced at the lowest possible cost (ATCLR is minimized), and capital is allocated efficiently.

Comparative Statics: Changes in Demand

• Increase in Demand:
  • Short Run: Market price increases, leading to positive short-run profits for existing firms.
  • Long Run: New firms enter the market, increasing supply. Entry continues until the price is driven back down to the minimum ATCLR. The result is more firms, higher total market output, but the same output per firm and no change in profits.
• Decrease in Demand:
  • Short Run: Market price decreases, leading to negative short-run profits.
  • Long Run: Firms exit the market, decreasing supply. Exit continues until the price rises back to the minimum ATCLR. The result is fewer firms, lower total market output, but the same output per firm and no change in profits.

Other Comparative Statics

Consider the effects of:

• Cost reductions.
• Taxes or subsidies.
• Price floors or ceilings.

Key Cost Curves and Profitability

• Important Per Unit Cost Curves: Marginal Cost (MC), Average Total Cost (ATC), and Average Variable Cost (AVC).
• Profit Maximization: Firms produce where MR = MC.
• Short-Run Profit Summary:
  • High Price (p > Break-Even Price): Positive profit.
  • Medium Price (Shutdown Price < p < Break-Even Price): Negative profit, but firms continue to operate to cover variable costs.
  • Low Price (p < Shutdown Price): Firms choose to close down to minimize losses (losses equal fixed costs).
• Break-Even Price (p*): The price where MC = ATC. At this price, profit is zero.
• Shutdown Price (pₓ): The price where MC = AVC. Below this price, firms shut down.

Core Concepts of Perfect Competition

A market is perfectly competitive if it exhibits:

• Homogeneous Products and Firms: Identical products and cost structures.
• Price Takers: Firms and consumers accept the market price.
• Profit Maximization/Utility Maximization: Firms aim to maximize profits, consumers maximize utility.
• Free Entry and Exit: Firms can easily enter or leave the market.

Economic vs. Accounting Profit

• Accounting Profit: Revenue minus explicit (out-of-pocket) costs.
• Economic Profit: Revenue minus explicit costs and opportunity costs (the value of the next-best alternative). Economic profit considers the full cost of resources used.

Short Run vs. Long Run Distinction

• Short Run (SR): Some inputs are fixed, while others are variable.
• Long Run (LR): All inputs are variable.

Short Run Cost Measures

• Fixed Costs (FC): Costs associated with fixed inputs (e.g., rent).
• Variable Costs (VC): Costs associated with variable inputs (e.g., labor, materials).
• Total Costs (TC): FC + VC.
• Average Fixed Cost (AFC): FC / q.
• Average Variable Cost (AVC): VC / q.
• Average Total Cost (ATC): TC / q.
• Marginal Cost (MC): The cost of producing one additional unit (ΔTC / Δq).

Relationships Between Per-Unit Costs

• AFC falls as quantity (q) increases.
• ATC approaches AVC as q increases.
• MC intersects AVC and ATC at their minimum points.
• If MC < AVC, AVC is falling. If MC > AVC, AVC is rising.
• If MC < ATC, ATC is falling. If MC > ATC, ATC is rising.

以下是对《ECON8069 Lecture 5》和《Notes & Review - ECON8069 Business Economics》第五章（完美竞争和成本理论）内容的详细中英文汇总（带结构梳理）：

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1. 完美竞争（Perfect Competition）

定义与特征

• 市场和企业产品都是同质的（homogenous）；
• 企业和消费者都是“价格接受者”（price-taker）；
• 企业最大化利润，消费者最大化消费剩余；
• 企业可自由进出市场[14]Source: ECON8069 Lecture 5.pdf(ECON8069) Lecture 5 2 / 39 Admin · Quiz 2 Review (ECON8069) Lecture 5 3 / 39 Admin · Quiz 2 Review (ECON8069) Lecture 5 3 / 39 Main Ingredients for Perfect Competition A market is perfectly competitive if it has a number of key ingredients: (ECON8069) Lecture 5 4 / 39 Economic Profit and Accounting Profit · They pay $400,000 is operating expenses (guns, poisons, fake passports, etc. )[21]Source: Notes & Review - ECON8069 Business Economics.pdf- Government should help guide consumer choice - Some decisions are very complex and individuals do not have enough information - If an individual behaviour benefits the larger society, the government should encourage that behaviour -> Positive Externality Xiaotong原创 5 Perfect Competition Key Ingredient - Firm and product are homogenous - Firm and consumer are "price-taker" - Firm profit-maximize & consumer surplus-maximize - Firm can freely entry and exist the market Profit · Accounting profit ---- revenue - explicit cost Economic profit - ---- revenue - explicit cost - implicit cost (expense) (opportunity cost) · The price-taking firm - Firm choose to sell as much as they want at a market price - Price = Marginal Revenue = Average Revenue - Firm level - demand is perfectly elastic Market level ----- may not · Short run o Total cost = Variable cost + Fixed cost o Per unit cost Average total cost q 1 ATC approaches AVC Average fixed cost q 1 AFC Į Average variable cost ---- AVC = VC / q MC < AVC ------ AVC Į ----- ATCĮ Marginal cost- MC = ATC/Aq = AVC/Aq MC> AVC ------ AVC 1 ----- ATCÎ Main variable cost = cost of Labour = w x L = VC Marginal Product of Labour: MPL = = 9 --- diminishing Marginal cost_ ----。

利润类型

• 会计利润（Accounting Profit）：收入减去显性成本；
• 经济利润（Economic Profit）：收入减去显性成本及机会成本（也称隐性成本）。

企业的价格接受者（Price-Taking Firm）行为

• 企业在市场价售卖任意数量，企业的需求曲线呈完全弹性；
• $ Price = Marginal\ Revenue = Average\ Revenue $。

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2. 成本曲线与利润分析（Cost Curves & Profit）

成本结构

• 总成本 $ TC = FC + VC $（固定成本 + 变动成本）；
• 平均总成本 $ ATC = TC/q $；
• 平均变动成本 $ AVC = VC/q $；
• 平均固定成本 $ AFC = FC/q $；
• 边际成本 $ MC = \Delta TC / \Delta q $；
• $ ATC = AFC + AVC $[2]Source: ECON8069 Lecture 5.pdfLecture 5 40 / 39 Per Unit Cost Curves (ECON8069) Lecture 5 14 / 39 Kebabs (1000's) FC VC TC AFC AVC ATC MC - - - - (ECON8069) Lecture 5[18]Source: ECON8069 Lecture 5.pdfAVC ∆q = AVC /AL Aq/AL = MPL w (ECON8069) Lecture 5 12 / 39 Relationships between per unit costs · ATC = AFC + AVC, because TC / q = (FC + VC) /q (ECON8069) Lecture 5 13 / 39 Relationships between per unit costs · ATC = AFC + AVC, because TC / q = (FC + VC) /q (ECON8069) Lecture 5 13 / 39 Relationships between per unit costs · ATC = AFC + AVC, because TC / q = (FC + VC) /q (ECON8069) Lecture 5 13 / 39。

各曲线关系

• $ MC $ 与 $ AVC,\ ATC $ 的最小点交于一点；
• 若 $ MC < AVC,\ ATC $ 时，$ AVC,\ ATC $ 递减；反之递增。

利润最大化标准

• 企业生产到 $ MR=MC $（此时利润最大）；
• 在完全竞争下，$ MR = Price $，因此 $ Price = MC $[27]Source: Notes & Review - ECON8069 Business Economics.pdfMC = Ag - Aq / AL - AVC/AL W MPL o Thinking on the Margin Firm maximize profit ------ increase production until MR = MC iamining 原创 o Short-run Profit Short-run Profit Cut-off SR Costs and Profit at High Price $ MC, S Po ATCo ATC AVC qo q ATC <p <AVC Loss but Open SR Costs and Profit at Medium Price $ MC, S ATE ATCO AVe po p = AVC Loss (=FC) & Close The Shut-Down Condition $[36]Source: Notes & Review - ECON8069 Business Economics.pdfEquil. Price ? Equil. Quantity V Firms & Incentives · Price-takers (set by market) ---- choose production levels to maximize profits · Production - Variable factor Input can be changed in a certain period of time & changes if the level of out put (labor) - Fixed factor Input cannot be changed in the short-run, regardless of how much output is produced (capital) · Long run All of the firm's inputs can be changed · Short run o Total cost = Variable cost + Fixed cost - Variable cost --- associated with the variable factor of production - Fixed cost associated with the fixed factor of production o Marginal cost Change in total cost associated with an additional unit of out put +variable cost (fixed cost do not change) o Opportunity / Implicit cost The alternative use of the money that's invested in capital (interest earnings) / of a worker's time Profit =Total revenues - Total Costs Profit = TR - TC - Total revenue (TR = P x Q) & Total cost (TC = ATC x Q) - Accounting profit = TR - TC (explicit only) - Economic profit = TR - TC (explicit + implicit / opportunity cost) Profit = (P x Q) - (ATC x Q) = (P - ATC) xQ Price fixed -> focus: maximize profit & variable / marginal cost (actual level of profit) (total cost) 原創 Producer Surplus Producer Surplus = Total Revenue - Variable Cost Total Revenue ---- sum of Marginal Revenue = p x q Total Cost -- sum of Marginal Cost。

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3. 短期利润、关停与盈亏边界（Short-Run Profit & Shut-down Analysis）

短期三种情形[6]Source: ECON8069 Lecture 5.pdf(ECON8069) Lecture 5 20 / 39 Short Run Profit - Summary (ECON8069) Lecture 5 21 / 39 Short Run Profit - Summary (ECON8069) Lecture 5 21 / 39 Short-Run Profit Cut-offs Zero Profit - The Break-Even Point $ - MC AVC - ATC q (ECON8069)[10]Source: ECON8069 Lecture 5.pdfLecture 5 20 / 39 Short-Run Profit SR Costs and Profit at Low Price $ - MC AVC - ATC po q0 q (ECON8069) Lecture 5 20 / 39 Short-Run Profit SR Costs and Profit at Low Price $ - MC AVC[17]Source: ECON8069 Lecture 5.pdf(ECON8069) Lecture 5 18 / 39 Short-Run Profit SR Costs and Profit at High Price $ - MC AVC ATC Po ATC0 q0 q (ECON8069) Lecture 5 18 / 39 Short-Run Profit SR Costs and Profit at Medium Price $ - - MC AVC[22]Source: ECON8069 Lecture 5.pdf$ - - MC AVC - ATC Po q0 q (ECON8069) Lecture 5 19 / 39 Short-Run Profit SR Costs and Profit at Medium Price $ - MC AVC ATC ATC0 Po[25]Source: ECON8069 Lecture 5.pdf- AVC ATC q (ECON8069) Lecture 5 18 / 39 Short-Run Profit SR Costs and Profit at High Price $ - MC - AVC ATC Po q (ECON8069) Lecture 5 18 / 39 Short-Run Profit SR Costs and Profit at High Price[24]Source: ECON8069 Lecture 5.pdfq (ECON8069) Lecture 5 22 / 39 Short-Run Profit The Shut-Down Condition $ - MC AVC - ATC q (ECON8069) Lecture 5 23 / 39 Short-Run Profit The Shut-Down Condition $ - MC：

1. 盈利：$ P > ATC $，企业赚取正经济利润；
2. 亏损但继续经营：$ AVC < P < ATC $，覆盖变动成本但不能覆盖所有成本，应继续经营（亏损小于固定成本）；
3. 关停：$ P < AVC $，连变动成本都无法覆盖，企业应关停。

盈亏和关停点

• 盈亏平衡点（Break-even Point）：$ P = ATC $，经济利润为0；
• 关停点（Shut-down Point）：$ P = AVC $。

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4. 长期成本与规模报酬（Long-run Costs & Returns to Scale）

长期所有投入可变，无固定成本[34]Source: Notes & Review - ECON8069 Business Economics.pdf· Long run All inputs are variable ----- high production > more capital (K) Search for minimum productions ------ efficient combination of capital and labour o Low quantity level ---- ATCSR is lower with low capital High quantity level ---- AT CSR is lower with a lot of capital ATCLR curve is the locus of the minimums of AT Csp curve -> all the minimum points of AT CSR curve O MCLR = Aq Aq MCLR < ATC ------ ATC \ MCLR > ATC ------ ATC 1 o Thinking on the Margin Maximize profit increase production until MR = MC o Break-even point = Shut-down point Price = ATCLR = AVCLR > choose capital so that minimum AT CSR = minimum AVCSR Economic profit = 0 (normal economic profit) accounting profit is positive 原料 o Returns to scale ---- production amounts Input > y(K, L) capital and labour WIE - Constant proportional increase in all input > same percentage increase in outcome - Increasing - increase in all input > more than proportional percentage increase in outcome - Decreasing --- -- increase in all input > less than proportional percentage increase in outcome o Economies to scale decreasing ATCLR curve (q 1 > ATCLR4) ----- production 1 > return î Diseconomies to scale ---- increasing ATCLR curve (q 1 > ATCLR1) ----- production 1 > return _ o Typical firm properly manage production cost - Economies of scale low output levels - Constant returns to scale moderate output levels - Diseconomies to scale high output levels Minimum efficient scale the smallest production level which minimums AT CLR (any more output will cause ATC increase) Economies of Scope is a related, but distinct ---- Where ATC declines as different goods are produced o Firm mergers (reasons) - Face economies to scale - reduce ATC (e. g. technology + new ideas) - Face economies to scope - -reduce ATC (e. g. software + computer) - They can more efficiently combine production technologies[4]Source: ECON8069 Lecture 5.pdfThe Long Run (ECON8069) Lecture 5 27 / 39 Thinking on the Margin AVCLR = ATCLR means the minimum AVCLR is the minimum ATCLR. (ECON8069) Lecture 5 28 / 39 Returns to Scale Returns to Scale is a Long Run production concept regarding production amounts in the long run. (ECON8069) Lecture 5 29 / 39 Returns to Scale Returns to Scale is a Long Run production concept regarding production amounts in the long run. (ECON8069) Lecture 5 29 / 39 Returns to Scale：

• 长期平均总成本 $ ATC_{LR} = AVC_{LR} $；
• $ ATC_{LR} $ 是所有可能资本水平下各短期平均成本最低点的包络线（locus of minima of ATC）。

长期边际成本 $ MC_{LR} $

• 若 $ MC_{LR} < ATC_{LR} $ ，$ ATC_{LR} $ 递减；
• 若 $ MC_{LR} > ATC_{LR} $ ，$ ATC_{LR} $ 递增；
• 两者交点即 $ ATC_{LR} $ 最小值。

规模报酬（Returns to Scale）

• 固定报酬：所有投入翻倍，产出也翻倍；
• 递增规模报酬：投入翻倍，产出多于翻倍（经济规模）；
• 递减规模报酬：投入翻倍，产出少于翻倍（不经济规模）。

长期均衡（Long-run Equilibrium）

• 价格等于 $ ATC_{LR} $ 最小值——此时所有企业零经济利润，资本配置最优[26]Source: ECON8069 Lecture 5.pdfFirm Exit (ECON8069) Lecture 5 36 / 39 Firm Exit (ECON8069) Lecture 5 36 / 39 Long-Run Equilibrium That is, when price equal minimum ATCLR. 1. ATCLR is minimised, so goods are produced at the lowest possible cost. 2. Capital is allocated efficiently; firms are neither over- nor under-capitalised. (ECON8069) Lecture 5 37 / 39 Comparative Statics - An Increase in Demand Suppose there is an increase in demand in the market. What happens in the short-run and long-run, at the firm-level and the market-level? (ECON8069) Lecture 5 38 / 39[29]Source: Notes & Review - ECON8069 Business Economics.pdf↓ ↓ no price change no change in profit P= Minimum AT CLR (equilibrium) P= Minimum AT CLR no price change no change in profit 原 Firm level PA MC P1 E S P2 E S2 -Po E0 E AVC q0 92 91 Q q0 91 92 93 Q Firm level P MC ATC ATC = Po[36]Source: Notes & Review - ECON8069 Business Economics.pdfEquil. Price ? Equil. Quantity V Firms & Incentives · Price-takers (set by market) ---- choose production levels to maximize profits · Production - Variable factor Input can be changed in a certain period of time & changes if the level of out put (labor) - Fixed factor Input cannot be changed in the short-run, regardless of how much output is produced (capital) · Long run All of the firm's inputs can be changed · Short run o Total cost = Variable cost + Fixed cost - Variable cost --- associated with the variable factor of production - Fixed cost associated with the fixed factor of production o Marginal cost Change in total cost associated with an additional unit of out put +variable cost (fixed cost do not change) o Opportunity / Implicit cost The alternative use of the money that's invested in capital (interest earnings) / of a worker's time Profit =Total revenues - Total Costs Profit = TR - TC - Total revenue (TR = P x Q) & Total cost (TC = ATC x Q) - Accounting profit = TR - TC (explicit only) - Economic profit = TR - TC (explicit + implicit / opportunity cost) Profit = (P x Q) - (ATC x Q) = (P - ATC) xQ Price fixed -> focus: maximize profit & variable / marginal cost (actual level of profit) (total cost) 原創 Producer Surplus Producer Surplus = Total Revenue - Variable Cost Total Revenue ---- sum of Marginal Revenue = p x q Total Cost -- sum of Marginal Cost。

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5. 市场的动态调整（Firm Entry/Exit & Comparative Statics）

企业进出

• 利润为正时，企业进入市场，市场供给增多，价格下降直到利润为零；
• 利润为负时，企业退出，市场供给减少，价格回升，直到不再有企业退出；
• 长期均衡时，价格=最低 $ ATC_{LR} $，企业无利可图[3]Source: ECON8069 Lecture 5.pdfThe Long Run Break-Even Point (ECON8069) Lecture 5 33 / 39 Firm Entry and Exit (ECON8069) Lecture 5 34 / 39 Firm Entry and Exit (ECON8069) Lecture 5 34 / 39 Firm Entry (ECON8069) Lecture 5 35 / 39 Firm Entry (ECON8069) Lecture 5 35 / 39[16]Source: ECON8069 Lecture 5.pdf39 / 39 Comparative Statics - A Decrease in Demand Suppose there is an decrease in demand in the market. What happens in the short-run and long-run, at the firm-level and the market-level? decreasing market price in SR firm exit in LR decrease in supply (shift left) in LR negative SR profit (ECON8069) Lecture 5 39 / 39 Comparative Statics - A Decrease in Demand Suppose there is an decrease in demand in the market. What happens in the short-run and long-run, at the firm-level and the market-level? decreasing market price in SR firm exit in LR decrease in supply (shift left) in LR negative SR profit · Results: · Less firms in industry (ECON8069) Lecture 5 39 / 39 Other Interesting Comparative Statics (ECON8069)[26]Source: ECON8069 Lecture 5.pdfFirm Exit (ECON8069) Lecture 5 36 / 39 Firm Exit (ECON8069) Lecture 5 36 / 39 Long-Run Equilibrium That is, when price equal minimum ATCLR. 1. ATCLR is minimised, so goods are produced at the lowest possible cost. 2. Capital is allocated efficiently; firms are neither over- nor under-capitalised. (ECON8069) Lecture 5 37 / 39 Comparative Statics - An Increase in Demand Suppose there is an increase in demand in the market. What happens in the short-run and long-run, at the firm-level and the market-level? (ECON8069) Lecture 5 38 / 39。

需求或成本变动的比较静态分析[29]Source: Notes & Review - ECON8069 Business Economics.pdf↓ ↓ no price change no change in profit P= Minimum AT CLR (equilibrium) P= Minimum AT CLR no price change no change in profit 原 Firm level PA MC P1 E S P2 E S2 -Po E0 E AVC q0 92 91 Q q0 91 92 93 Q Firm level P MC ATC ATC = Po[33]Source: Notes & Review - ECON8069 Business Economics.pdfP2 -AVC P1 91 92 90 Q Market level P S2 S1 S0 E3 Po E0 E2 P2 E D1 - - 93 92 91 q0 Q ong Market level P S0 -ATC ATC = Po D1 D0 Cost change P：

• 需求增加：短期价格上涨，长期新企业进入，价格回落至 $ ATC_{LR} $ 水平，行业规模扩大，单个企业均衡产量不变；
• 需求减少：短期价格下跌，企业亏损，长期企业退出，供给降低，价格回升至 $ ATC_{LR} $ 水平。

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6. 扩展：生产者剩余与机会成本

• 生产者剩余（Producer Surplus）= 总收入 – 变动成本；
• 机会成本（Opportunity Cost）：资源的最优替代用途的价值，都需在经济利润计算中考虑[36]Source: Notes & Review - ECON8069 Business Economics.pdfEquil. Price ? Equil. Quantity V Firms & Incentives · Price-takers (set by market) ---- choose production levels to maximize profits · Production - Variable factor Input can be changed in a certain period of time & changes if the level of out put (labor) - Fixed factor Input cannot be changed in the short-run, regardless of how much output is produced (capital) · Long run All of the firm's inputs can be changed · Short run o Total cost = Variable cost + Fixed cost - Variable cost --- associated with the variable factor of production - Fixed cost associated with the fixed factor of production o Marginal cost Change in total cost associated with an additional unit of out put +variable cost (fixed cost do not change) o Opportunity / Implicit cost The alternative use of the money that's invested in capital (interest earnings) / of a worker's time Profit =Total revenues - Total Costs Profit = TR - TC - Total revenue (TR = P x Q) & Total cost (TC = ATC x Q) - Accounting profit = TR - TC (explicit only) - Economic profit = TR - TC (explicit + implicit / opportunity cost) Profit = (P x Q) - (ATC x Q) = (P - ATC) xQ Price fixed -> focus: maximize profit & variable / marginal cost (actual level of profit) (total cost) 原創 Producer Surplus Producer Surplus = Total Revenue - Variable Cost Total Revenue ---- sum of Marginal Revenue = p x q Total Cost -- sum of Marginal Cost。

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简洁英文汇总：

Lecture 5 and Note Chapter 5 focus on perfect competition and production costs:

• Firms are price-takers, seeking profit maximization where $ MR=MC $, with no long-run profits due to free entry and exit.
• Short-run outcomes: profit if $ P>ATC $, shutdown if $ P<AVC $, otherwise operate at a loss.
• Long-run: All costs are variable, $ ATC_{LR} $ minimized; market price equals minimum $ ATC_{LR} $ in equilibrium, ensuring all firms earn zero economic profit.
• Dynamic adjustment: Entry/exit drives market back to equilibrium after demand or cost shocks.

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Here’s a detailed English summary of the main points from both ECON8069 Lecture 5 and Chapter 5 (Perfect Competition) in the Notes & Review – focusing on perfect competition and cost theory:

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1. Characteristics of Perfect Competition

• Definition: A market is perfectly competitive if:
  • Firms and products are homogeneous.
  • All firms and consumers are price-takers.
  • Firms aim to maximize profits; consumers aim to maximize consumer surplus.
  • Free entry and exit for firms in the market[14]Source: Notes & Review - ECON8069 Business Economics.pdf- Government should help guide consumer choice - Some decisions are very complex and individuals do not have enough information - If an individual behaviour benefits the larger society, the government should encourage that behaviour -> Positive Externality Xiaotong原创 5 Perfect Competition Key Ingredient - Firm and product are homogenous - Firm and consumer are "price-taker" - Firm profit-maximize & consumer surplus-maximize - Firm can freely entry and exist the market Profit · Accounting profit ---- revenue - explicit cost Economic profit - ---- revenue - explicit cost - implicit cost (expense) (opportunity cost) · The price-taking firm - Firm choose to sell as much as they want at a market price - Price = Marginal Revenue = Average Revenue - Firm level - demand is perfectly elastic Market level ----- may not · Short run o Total cost = Variable cost + Fixed cost o Per unit cost Average total cost q 1 ATC approaches AVC Average fixed cost q 1 AFC Į Average variable cost ---- AVC = VC / q MC < AVC ------ AVC Į ----- ATCĮ Marginal cost- MC = ATC/Aq = AVC/Aq MC> AVC ------ AVC 1 ----- ATCÎ Main variable cost = cost of Labour = w x L = VC Marginal Product of Labour: MPL = = 9 --- diminishing Marginal cost_ ----[24]Source: ECON8069 Lecture 5.pdf(ECON8069) Lecture 5 2 / 39 Admin · Quiz 2 Review (ECON8069) Lecture 5 3 / 39 Admin · Quiz 2 Review (ECON8069) Lecture 5 3 / 39 Main Ingredients for Perfect Competition A market is perfectly competitive if it has a number of key ingredients: (ECON8069) Lecture 5 4 / 39 Economic Profit and Accounting Profit · They pay $400,000 is operating expenses (guns, poisons, fake passports, etc. ).
• Firm’s Demand Curve: Each firm faces a perfectly elastic (horizontal) demand at the market price; it can sell as much as it wants at that price[14]Source: Notes & Review - ECON8069 Business Economics.pdf- Government should help guide consumer choice - Some decisions are very complex and individuals do not have enough information - If an individual behaviour benefits the larger society, the government should encourage that behaviour -> Positive Externality Xiaotong原创 5 Perfect Competition Key Ingredient - Firm and product are homogenous - Firm and consumer are "price-taker" - Firm profit-maximize & consumer surplus-maximize - Firm can freely entry and exist the market Profit · Accounting profit ---- revenue - explicit cost Economic profit - ---- revenue - explicit cost - implicit cost (expense) (opportunity cost) · The price-taking firm - Firm choose to sell as much as they want at a market price - Price = Marginal Revenue = Average Revenue - Firm level - demand is perfectly elastic Market level ----- may not · Short run o Total cost = Variable cost + Fixed cost o Per unit cost Average total cost q 1 ATC approaches AVC Average fixed cost q 1 AFC Į Average variable cost ---- AVC = VC / q MC < AVC ------ AVC Į ----- ATCĮ Marginal cost- MC = ATC/Aq = AVC/Aq MC> AVC ------ AVC 1 ----- ATCÎ Main variable cost = cost of Labour = w x L = VC Marginal Product of Labour: MPL = = 9 --- diminishing Marginal cost_ ----[26]Source: ECON8069 Lecture 5.pdf(ECON8069) Lecture 5 5 / 39 Economic Profit and Accounting Profit · They pay $400,000 is operating expenses (guns, poisons, fake passports, etc. ) (ECON8069) Lecture 5 5 / 39 Economic Costs and Accounting Costs Accounting Profit A firm's Accounting Profit is their Revenue minus their Costs. Economic Profit A firm's Economic Profit is the difference between their current profit, and the profit from their next-best alternative. Equivalently, Economic Profit is Revenue minus explicit costs minus opportunity costs. (ECON8069) Lecture 5 6 / 39 The Price-Taking Firm (ECON8069) Lecture 5 7 / 39.
• Profit Types:
  • Accounting Profit: Revenue minus explicit costs.
  • Economic Profit: Revenue minus explicit and opportunity (implicit) costs[14]Source: Notes & Review - ECON8069 Business Economics.pdf- Government should help guide consumer choice - Some decisions are very complex and individuals do not have enough information - If an individual behaviour benefits the larger society, the government should encourage that behaviour -> Positive Externality Xiaotong原创 5 Perfect Competition Key Ingredient - Firm and product are homogenous - Firm and consumer are "price-taker" - Firm profit-maximize & consumer surplus-maximize - Firm can freely entry and exist the market Profit · Accounting profit ---- revenue - explicit cost Economic profit - ---- revenue - explicit cost - implicit cost (expense) (opportunity cost) · The price-taking firm - Firm choose to sell as much as they want at a market price - Price = Marginal Revenue = Average Revenue - Firm level - demand is perfectly elastic Market level ----- may not · Short run o Total cost = Variable cost + Fixed cost o Per unit cost Average total cost q 1 ATC approaches AVC Average fixed cost q 1 AFC Į Average variable cost ---- AVC = VC / q MC < AVC ------ AVC Į ----- ATCĮ Marginal cost- MC = ATC/Aq = AVC/Aq MC> AVC ------ AVC 1 ----- ATCÎ Main variable cost = cost of Labour = w x L = VC Marginal Product of Labour: MPL = = 9 --- diminishing Marginal cost_ ----[26]Source: ECON8069 Lecture 5.pdf(ECON8069) Lecture 5 5 / 39 Economic Profit and Accounting Profit · They pay $400,000 is operating expenses (guns, poisons, fake passports, etc. ) (ECON8069) Lecture 5 5 / 39 Economic Costs and Accounting Costs Accounting Profit A firm's Accounting Profit is their Revenue minus their Costs. Economic Profit A firm's Economic Profit is the difference between their current profit, and the profit from their next-best alternative. Equivalently, Economic Profit is Revenue minus explicit costs minus opportunity costs. (ECON8069) Lecture 5 6 / 39 The Price-Taking Firm (ECON8069) Lecture 5 7 / 39.

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2. Cost Concepts and Curves

• Total Cost (TC): $ TC = FC + VC $ (Fixed Cost + Variable Cost)
• Per Unit Costs:
  • Average Fixed Cost (AFC): $ AFC = FC / q $
  • Average Variable Cost (AVC): $ AVC = VC / q $
  • Average Total Cost (ATC): $ ATC = TC / q = AFC + AVC $
  • Marginal Cost (MC): $ MC = \Delta TC / \Delta q $; also the cost of one more unit of output[38]Source: ECON8069 Lecture 5.pdfPer Unit Costs (ECON8069) Lecture 5 11 / 39 Per Unit Costs Why is ATC = AVC? (ECON8069) Lecture 5 11 / 39 More about Marginal Costs (ECON8069) Lecture 5 12 / 39 More about Marginal Costs MC = AVC ∆q = AVC /AL Aq/AL = MPL w (ECON8069) Lecture 5 12 / 39 More about Marginal Costs MC =[14]Source: Notes & Review - ECON8069 Business Economics.pdf- Government should help guide consumer choice - Some decisions are very complex and individuals do not have enough information - If an individual behaviour benefits the larger society, the government should encourage that behaviour -> Positive Externality Xiaotong原创 5 Perfect Competition Key Ingredient - Firm and product are homogenous - Firm and consumer are "price-taker" - Firm profit-maximize & consumer surplus-maximize - Firm can freely entry and exist the market Profit · Accounting profit ---- revenue - explicit cost Economic profit - ---- revenue - explicit cost - implicit cost (expense) (opportunity cost) · The price-taking firm - Firm choose to sell as much as they want at a market price - Price = Marginal Revenue = Average Revenue - Firm level - demand is perfectly elastic Market level ----- may not · Short run o Total cost = Variable cost + Fixed cost o Per unit cost Average total cost q 1 ATC approaches AVC Average fixed cost q 1 AFC Į Average variable cost ---- AVC = VC / q MC < AVC ------ AVC Į ----- ATCĮ Marginal cost- MC = ATC/Aq = AVC/Aq MC> AVC ------ AVC 1 ----- ATCÎ Main variable cost = cost of Labour = w x L = VC Marginal Product of Labour: MPL = = 9 --- diminishing Marginal cost_ ----.
• Curve Relationships:
  • $ MC $ cuts $ AVC $ and $ ATC $ at their minimum points.
  • $ MC < AVC $ (or $ ATC $): those curves are falling; $ MC > AVC $ (or $ ATC $): those curves are rising[14]Source: Notes & Review - ECON8069 Business Economics.pdf- Government should help guide consumer choice - Some decisions are very complex and individuals do not have enough information - If an individual behaviour benefits the larger society, the government should encourage that behaviour -> Positive Externality Xiaotong原创 5 Perfect Competition Key Ingredient - Firm and product are homogenous - Firm and consumer are "price-taker" - Firm profit-maximize & consumer surplus-maximize - Firm can freely entry and exist the market Profit · Accounting profit ---- revenue - explicit cost Economic profit - ---- revenue - explicit cost - implicit cost (expense) (opportunity cost) · The price-taking firm - Firm choose to sell as much as they want at a market price - Price = Marginal Revenue = Average Revenue - Firm level - demand is perfectly elastic Market level ----- may not · Short run o Total cost = Variable cost + Fixed cost o Per unit cost Average total cost q 1 ATC approaches AVC Average fixed cost q 1 AFC Į Average variable cost ---- AVC = VC / q MC < AVC ------ AVC Į ----- ATCĮ Marginal cost- MC = ATC/Aq = AVC/Aq MC> AVC ------ AVC 1 ----- ATCÎ Main variable cost = cost of Labour = w x L = VC Marginal Product of Labour: MPL = = 9 --- diminishing Marginal cost_ ----[27]Source: ECON8069 Lecture 5.pdf(ECON8069) Lecture 5 26 / 39 Long Run Costs (ECON8069) Lecture 5 26 / 39 Long Run Costs (ECON8069) Lecture 5 26 / 39 Perfect Competition ECON8069 - Lecture 5 Australian National University (ECON8069) Lecture 5 1 / 39 Perfect Competition · Per-unit Costs Textbook: Section 6. 5, 6. 6. Chapter 7..
• Short-Run vs. Long-Run:
  • Short run: At least one factor (e.g., capital) is fixed; only variable costs can change[8]Source: Notes & Review - ECON8069 Business Economics.pdfEquil. Price ? Equil. Quantity V Firms & Incentives · Price-takers (set by market) ---- choose production levels to maximize profits · Production - Variable factor Input can be changed in a certain period of time & changes if the level of out put (labor) - Fixed factor Input cannot be changed in the short-run, regardless of how much output is produced (capital) · Long run All of the firm's inputs can be changed · Short run o Total cost = Variable cost + Fixed cost - Variable cost --- associated with the variable factor of production - Fixed cost associated with the fixed factor of production o Marginal cost Change in total cost associated with an additional unit of out put +variable cost (fixed cost do not change) o Opportunity / Implicit cost The alternative use of the money that's invested in capital (interest earnings) / of a worker's time Profit =Total revenues - Total Costs Profit = TR - TC - Total revenue (TR = P x Q) & Total cost (TC = ATC x Q) - Accounting profit = TR - TC (explicit only) - Economic profit = TR - TC (explicit + implicit / opportunity cost) Profit = (P x Q) - (ATC x Q) = (P - ATC) xQ Price fixed -> focus: maximize profit & variable / marginal cost (actual level of profit) (total cost) 原創 Producer Surplus Producer Surplus = Total Revenue - Variable Cost Total Revenue ---- sum of Marginal Revenue = p x q Total Cost -- sum of Marginal Cost.
  • Long run: All inputs, including capital, are variable; no fixed costs[16]Source: Notes & Review - ECON8069 Business Economics.pdf· Long run All inputs are variable ----- high production > more capital (K) Search for minimum productions ------ efficient combination of capital and labour o Low quantity level ---- ATCSR is lower with low capital High quantity level ---- AT CSR is lower with a lot of capital ATCLR curve is the locus of the minimums of AT Csp curve -> all the minimum points of AT CSR curve O MCLR = Aq Aq MCLR < ATC ------ ATC \ MCLR > ATC ------ ATC 1 o Thinking on the Margin Maximize profit increase production until MR = MC o Break-even point = Shut-down point Price = ATCLR = AVCLR > choose capital so that minimum AT CSR = minimum AVCSR Economic profit = 0 (normal economic profit) accounting profit is positive 原料 o Returns to scale ---- production amounts Input > y(K, L) capital and labour WIE - Constant proportional increase in all input > same percentage increase in outcome - Increasing - increase in all input > more than proportional percentage increase in outcome - Decreasing --- -- increase in all input > less than proportional percentage increase in outcome o Economies to scale decreasing ATCLR curve (q 1 > ATCLR4) ----- production 1 > return î Diseconomies to scale ---- increasing ATCLR curve (q 1 > ATCLR1) ----- production 1 > return _ o Typical firm properly manage production cost - Economies of scale low output levels - Constant returns to scale moderate output levels - Diseconomies to scale high output levels Minimum efficient scale the smallest production level which minimums AT CLR (any more output will cause ATC increase) Economies of Scope is a related, but distinct ---- Where ATC declines as different goods are produced o Firm mergers (reasons) - Face economies to scale - reduce ATC (e. g. technology + new ideas) - Face economies to scope - -reduce ATC (e. g. software + computer) - They can more efficiently combine production technologies[27]Source: ECON8069 Lecture 5.pdf(ECON8069) Lecture 5 26 / 39 Long Run Costs (ECON8069) Lecture 5 26 / 39 Long Run Costs (ECON8069) Lecture 5 26 / 39 Perfect Competition ECON8069 - Lecture 5 Australian National University (ECON8069) Lecture 5 1 / 39 Perfect Competition · Per-unit Costs Textbook: Section 6. 5, 6. 6. Chapter 7..

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3. Profit Maximization & Shutdown/Break-Even Conditions

• Profit Maximization Condition: $ Price = Marginal \ Revenue = Marginal \ Cost $ ($ P = MR = MC $)
• Short-Run Cases:
  • Profit: $ P > ATC $ (Firm earns positive economic profit)
  • Operate at a Loss: $ AVC < P < ATC $ (Covering variable cost; better to continue operating in short run)
  • Shutdown: $ P < AVC $ (Cannot cover variable costs; should temporarily close[12]Source: Notes & Review - ECON8069 Business Economics.pdfMC = Ag - Aq / AL - AVC/AL W MPL o Thinking on the Margin Firm maximize profit ------ increase production until MR = MC iamining 原创 o Short-run Profit Short-run Profit Cut-off SR Costs and Profit at High Price $ MC, S Po ATCo ATC AVC qo q ATC <p <AVC Loss but Open SR Costs and Profit at Medium Price $ MC, S ATE ATCO AVe po p = AVC Loss (=FC) & Close The Shut-Down Condition $[30]Source: ECON8069 Lecture 5.pdf(ECON8069) Lecture 5 20 / 39 Short Run Profit - Summary (ECON8069) Lecture 5 21 / 39 Short Run Profit - Summary (ECON8069) Lecture 5 21 / 39 Short-Run Profit Cut-offs Zero Profit - The Break-Even Point $ - MC AVC - ATC q (ECON8069)[33]Source: ECON8069 Lecture 5.pdfq (ECON8069) Lecture 5 22 / 39 Short-Run Profit The Shut-Down Condition $ - MC AVC - ATC q (ECON8069) Lecture 5 23 / 39 Short-Run Profit The Shut-Down Condition $ - MC[34]Source: ECON8069 Lecture 5.pdfAVC - ATC AVC* = Px q (ECON8069) Lecture 5 23 / 39 Short-Run Profit The Shut-Down Condition $ - MC AVC - ATC AVC* = Px q* q (ECON8069) Lecture 5[35]Source: ECON8069 Lecture 5.pdfMC AVC - ATC ATC * AVC* = Px q* q (ECON8069) Lecture 5 23 / 39 Short-Run Profit The Shut-Down Condition $ - MC AVC - ATC Profit = - FC[37]Source: ECON8069 Lecture 5.pdf23 / 39 Short-Run Profit The Shut-Down Condition $ - MC AVC - ATC ATC, * AVC* = Px q* q (ECON8069) Lecture 5 23 / 39 Short-Run Profit The Shut-Down Condition $ -[39]Source: ECON8069 Lecture 5.pdf$ - - MC AVC - ATC Po q0 q (ECON8069) Lecture 5 19 / 39 Short-Run Profit SR Costs and Profit at Medium Price $ - MC AVC ATC ATC0 Po)**
• Break-Even Point: $ P = ATC $ (Zero economic profit; normal profit)
• Shutdown Point: $ P = AVC $ (Minimum point where the firm stays open in the short run)

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4. Long-Run Costs and Returns to Scale

• Long-Run Average Total Cost ($ ATC_{LR} $): The envelope (line connecting lowest points) of all possible short-run ATCs for different levels of capital[16]Source: Notes & Review - ECON8069 Business Economics.pdf· Long run All inputs are variable ----- high production > more capital (K) Search for minimum productions ------ efficient combination of capital and labour o Low quantity level ---- ATCSR is lower with low capital High quantity level ---- AT CSR is lower with a lot of capital ATCLR curve is the locus of the minimums of AT Csp curve -> all the minimum points of AT CSR curve O MCLR = Aq Aq MCLR < ATC ------ ATC \ MCLR > ATC ------ ATC 1 o Thinking on the Margin Maximize profit increase production until MR = MC o Break-even point = Shut-down point Price = ATCLR = AVCLR > choose capital so that minimum AT CSR = minimum AVCSR Economic profit = 0 (normal economic profit) accounting profit is positive 原料 o Returns to scale ---- production amounts Input > y(K, L) capital and labour WIE - Constant proportional increase in all input > same percentage increase in outcome - Increasing - increase in all input > more than proportional percentage increase in outcome - Decreasing --- -- increase in all input > less than proportional percentage increase in outcome o Economies to scale decreasing ATCLR curve (q 1 > ATCLR4) ----- production 1 > return î Diseconomies to scale ---- increasing ATCLR curve (q 1 > ATCLR1) ----- production 1 > return _ o Typical firm properly manage production cost - Economies of scale low output levels - Constant returns to scale moderate output levels - Diseconomies to scale high output levels Minimum efficient scale the smallest production level which minimums AT CLR (any more output will cause ATC increase) Economies of Scope is a related, but distinct ---- Where ATC declines as different goods are produced o Firm mergers (reasons) - Face economies to scale - reduce ATC (e. g. technology + new ideas) - Face economies to scope - -reduce ATC (e. g. software + computer) - They can more efficiently combine production technologies[27]Source: ECON8069 Lecture 5.pdf(ECON8069) Lecture 5 26 / 39 Long Run Costs (ECON8069) Lecture 5 26 / 39 Long Run Costs (ECON8069) Lecture 5 26 / 39 Perfect Competition ECON8069 - Lecture 5 Australian National University (ECON8069) Lecture 5 1 / 39 Perfect Competition · Per-unit Costs Textbook: Section 6. 5, 6. 6. Chapter 7.[29]Source: ECON8069 Lecture 5.pdfThe Long Run (ECON8069) Lecture 5 27 / 39 Thinking on the Margin AVCLR = ATCLR means the minimum AVCLR is the minimum ATCLR. (ECON8069) Lecture 5 28 / 39 Returns to Scale Returns to Scale is a Long Run production concept regarding production amounts in the long run. (ECON8069) Lecture 5 29 / 39 Returns to Scale Returns to Scale is a Long Run production concept regarding production amounts in the long run. (ECON8069) Lecture 5 29 / 39 Returns to Scale.
• Returns to Scale: How output changes as all inputs are increased proportionally:
  • Constant Returns to Scale: Output increases proportionally with inputs.
  • Increasing Returns to Scale: Output increases more than proportional.
  • Decreasing Returns to Scale: Output increases less than proportional[16]Source: Notes & Review - ECON8069 Business Economics.pdf· Long run All inputs are variable ----- high production > more capital (K) Search for minimum productions ------ efficient combination of capital and labour o Low quantity level ---- ATCSR is lower with low capital High quantity level ---- AT CSR is lower with a lot of capital ATCLR curve is the locus of the minimums of AT Csp curve -> all the minimum points of AT CSR curve O MCLR = Aq Aq MCLR < ATC ------ ATC \ MCLR > ATC ------ ATC 1 o Thinking on the Margin Maximize profit increase production until MR = MC o Break-even point = Shut-down point Price = ATCLR = AVCLR > choose capital so that minimum AT CSR = minimum AVCSR Economic profit = 0 (normal economic profit) accounting profit is positive 原料 o Returns to scale ---- production amounts Input > y(K, L) capital and labour WIE - Constant proportional increase in all input > same percentage increase in outcome - Increasing - increase in all input > more than proportional percentage increase in outcome - Decreasing --- -- increase in all input > less than proportional percentage increase in outcome o Economies to scale decreasing ATCLR curve (q 1 > ATCLR4) ----- production 1 > return î Diseconomies to scale ---- increasing ATCLR curve (q 1 > ATCLR1) ----- production 1 > return _ o Typical firm properly manage production cost - Economies of scale low output levels - Constant returns to scale moderate output levels - Diseconomies to scale high output levels Minimum efficient scale the smallest production level which minimums AT CLR (any more output will cause ATC increase) Economies of Scope is a related, but distinct ---- Where ATC declines as different goods are produced o Firm mergers (reasons) - Face economies to scale - reduce ATC (e. g. technology + new ideas) - Face economies to scope - -reduce ATC (e. g. software + computer) - They can more efficiently combine production technologies[29]Source: ECON8069 Lecture 5.pdfThe Long Run (ECON8069) Lecture 5 27 / 39 Thinking on the Margin AVCLR = ATCLR means the minimum AVCLR is the minimum ATCLR. (ECON8069) Lecture 5 28 / 39 Returns to Scale Returns to Scale is a Long Run production concept regarding production amounts in the long run. (ECON8069) Lecture 5 29 / 39 Returns to Scale Returns to Scale is a Long Run production concept regarding production amounts in the long run. (ECON8069) Lecture 5 29 / 39 Returns to Scale[40]Source: ECON8069 Lecture 5.pdfReturns to Scale is a Long Run production concept regarding production amounts in the long run. (ECON8069) Lecture 5 29 / 39 Economies of Scale Returns to Scale is a Long Run cost concept regarding average costs in the long run. Associated with increasing returns from increasing production. Associated with decreasing returns from increasing production. (ECON8069) Lecture 5 30 / 39 Typical Firm in the Long Run (ECON8069) Lecture 5 31 / 39 Firm Mergers Firms merge due to a range of reasons: (ECON8069) Lecture 5 32 / 39.
• Economies of Scale: When $ ATC_{LR} $ decreases as output increases (due to increasing returns to scale).
• Diseconomies of Scale: When $ ATC_{LR} $ increases with output (due to decreasing returns).

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5. Long-Run Market Adjustment (Entry and Exit)

• Entry: When short-run profits exist ($ P > ATC_{LR} $), new firms enter, increasing market supply and driving price down until profits are zero[23]Source: ECON8069 Lecture 5.pdfFirm Exit (ECON8069) Lecture 5 36 / 39 Firm Exit (ECON8069) Lecture 5 36 / 39 Long-Run Equilibrium That is, when price equal minimum ATCLR. 1. ATCLR is minimised, so goods are produced at the lowest possible cost. 2. Capital is allocated efficiently; firms are neither over- nor under-capitalised. (ECON8069) Lecture 5 37 / 39 Comparative Statics - An Increase in Demand Suppose there is an increase in demand in the market. What happens in the short-run and long-run, at the firm-level and the market-level? (ECON8069) Lecture 5 38 / 39[28]Source: ECON8069 Lecture 5.pdfThe Long Run Break-Even Point (ECON8069) Lecture 5 33 / 39 Firm Entry and Exit (ECON8069) Lecture 5 34 / 39 Firm Entry and Exit (ECON8069) Lecture 5 34 / 39 Firm Entry (ECON8069) Lecture 5 35 / 39 Firm Entry (ECON8069) Lecture 5 35 / 39.
• Exit: When firms face losses ($ P < ATC_{LR} $), some exit, decreasing market supply and raising price until losses are eliminated.
• Long-Run Equilibrium: Reached when $ P = min(ATC_{LR}) $; all firms earn zero economic profit, and capital is efficiently allocated[23]Source: ECON8069 Lecture 5.pdfFirm Exit (ECON8069) Lecture 5 36 / 39 Firm Exit (ECON8069) Lecture 5 36 / 39 Long-Run Equilibrium That is, when price equal minimum ATCLR. 1. ATCLR is minimised, so goods are produced at the lowest possible cost. 2. Capital is allocated efficiently; firms are neither over- nor under-capitalised. (ECON8069) Lecture 5 37 / 39 Comparative Statics - An Increase in Demand Suppose there is an increase in demand in the market. What happens in the short-run and long-run, at the firm-level and the market-level? (ECON8069) Lecture 5 38 / 39.

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6. Comparative Statics: Demand and Cost Shocks

• Increase in Demand:
  • Short run: Market price rises, existing firms earn positive profit.
  • Long run: Entry occurs, supply increases, price returns to $ min(ATC_{LR}) $, more firms in market, but same output per firm[23]Source: ECON8069 Lecture 5.pdfFirm Exit (ECON8069) Lecture 5 36 / 39 Firm Exit (ECON8069) Lecture 5 36 / 39 Long-Run Equilibrium That is, when price equal minimum ATCLR. 1. ATCLR is minimised, so goods are produced at the lowest possible cost. 2. Capital is allocated efficiently; firms are neither over- nor under-capitalised. (ECON8069) Lecture 5 37 / 39 Comparative Statics - An Increase in Demand Suppose there is an increase in demand in the market. What happens in the short-run and long-run, at the firm-level and the market-level? (ECON8069) Lecture 5 38 / 39[36]Source: ECON8069 Lecture 5.pdf39 / 39 Comparative Statics - A Decrease in Demand Suppose there is an decrease in demand in the market. What happens in the short-run and long-run, at the firm-level and the market-level? decreasing market price in SR firm exit in LR decrease in supply (shift left) in LR negative SR profit (ECON8069) Lecture 5 39 / 39 Comparative Statics - A Decrease in Demand Suppose there is an decrease in demand in the market. What happens in the short-run and long-run, at the firm-level and the market-level? decreasing market price in SR firm exit in LR decrease in supply (shift left) in LR negative SR profit · Results: · Less firms in industry (ECON8069) Lecture 5 39 / 39 Other Interesting Comparative Statics (ECON8069).
• Decrease in Demand:
  • Short run: Price falls, firms take losses.
  • Long run: Firms exit, price rises back to $ min(ATC_{LR}) $, fewer firms in market, same output per firm.
• Effects of Cost Changes, Taxes/Subsidies, and Regulations: These shift cost curves and alter equilibrium price, profit, and market structure (not covered in detail here, but included in lecture).

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7. Additional Concepts

• Producer Surplus: Total revenue minus variable cost; a measure of what producers gain from selling at the market price[8]Source: Notes & Review - ECON8069 Business Economics.pdfEquil. Price ? Equil. Quantity V Firms & Incentives · Price-takers (set by market) ---- choose production levels to maximize profits · Production - Variable factor Input can be changed in a certain period of time & changes if the level of out put (labor) - Fixed factor Input cannot be changed in the short-run, regardless of how much output is produced (capital) · Long run All of the firm's inputs can be changed · Short run o Total cost = Variable cost + Fixed cost - Variable cost --- associated with the variable factor of production - Fixed cost associated with the fixed factor of production o Marginal cost Change in total cost associated with an additional unit of out put +variable cost (fixed cost do not change) o Opportunity / Implicit cost The alternative use of the money that's invested in capital (interest earnings) / of a worker's time Profit =Total revenues - Total Costs Profit = TR - TC - Total revenue (TR = P x Q) & Total cost (TC = ATC x Q) - Accounting profit = TR - TC (explicit only) - Economic profit = TR - TC (explicit + implicit / opportunity cost) Profit = (P x Q) - (ATC x Q) = (P - ATC) xQ Price fixed -> focus: maximize profit & variable / marginal cost (actual level of profit) (total cost) 原創 Producer Surplus Producer Surplus = Total Revenue - Variable Cost Total Revenue ---- sum of Marginal Revenue = p x q Total Cost -- sum of Marginal Cost.
• Opportunity Cost: The return from the next-best alternative forgone; included in economic cost.
• Perfect Competition Summary: Ensures efficient resource allocation, produces at the minimum cost, and returns zero economic profit in the long run[24]Source: ECON8069 Lecture 5.pdf(ECON8069) Lecture 5 2 / 39 Admin · Quiz 2 Review (ECON8069) Lecture 5 3 / 39 Admin · Quiz 2 Review (ECON8069) Lecture 5 3 / 39 Main Ingredients for Perfect Competition A market is perfectly competitive if it has a number of key ingredients: (ECON8069) Lecture 5 4 / 39 Economic Profit and Accounting Profit · They pay $400,000 is operating expenses (guns, poisons, fake passports, etc. )[16]Source: Notes & Review - ECON8069 Business Economics.pdf· Long run All inputs are variable ----- high production > more capital (K) Search for minimum productions ------ efficient combination of capital and labour o Low quantity level ---- ATCSR is lower with low capital High quantity level ---- AT CSR is lower with a lot of capital ATCLR curve is the locus of the minimums of AT Csp curve -> all the minimum points of AT CSR curve O MCLR = Aq Aq MCLR < ATC ------ ATC \ MCLR > ATC ------ ATC 1 o Thinking on the Margin Maximize profit increase production until MR = MC o Break-even point = Shut-down point Price = ATCLR = AVCLR > choose capital so that minimum AT CSR = minimum AVCSR Economic profit = 0 (normal economic profit) accounting profit is positive 原料 o Returns to scale ---- production amounts Input > y(K, L) capital and labour WIE - Constant proportional increase in all input > same percentage increase in outcome - Increasing - increase in all input > more than proportional percentage increase in outcome - Decreasing --- -- increase in all input > less than proportional percentage increase in outcome o Economies to scale decreasing ATCLR curve (q 1 > ATCLR4) ----- production 1 > return î Diseconomies to scale ---- increasing ATCLR curve (q 1 > ATCLR1) ----- production 1 > return _ o Typical firm properly manage production cost - Economies of scale low output levels - Constant returns to scale moderate output levels - Diseconomies to scale high output levels Minimum efficient scale the smallest production level which minimums AT CLR (any more output will cause ATC increase) Economies of Scope is a related, but distinct ---- Where ATC declines as different goods are produced o Firm mergers (reasons) - Face economies to scale - reduce ATC (e. g. technology + new ideas) - Face economies to scope - -reduce ATC (e. g. software + computer) - They can more efficiently combine production technologies[29]Source: ECON8069 Lecture 5.pdfThe Long Run (ECON8069) Lecture 5 27 / 39 Thinking on the Margin AVCLR = ATCLR means the minimum AVCLR is the minimum ATCLR. (ECON8069) Lecture 5 28 / 39 Returns to Scale Returns to Scale is a Long Run production concept regarding production amounts in the long run. (ECON8069) Lecture 5 29 / 39 Returns to Scale Returns to Scale is a Long Run production concept regarding production amounts in the long run. (ECON8069) Lecture 5 29 / 39 Returns to Scale.

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References

• All points are based on the combined content from [ECON8069 Lecture 5.pdf] and [Notes & Review - ECON8069 Business Economics.pdf] [7]Source: ECON8069 Lecture 5.pdf15 / 39 -- AFC $ Kebabs (1000's) (ECON8069) Lecture 5 16 / 39 AFC AVC $ Kebabs (1000's) (ECON8069) Lecture 5 16 / 39 -0 AFC - AVC ATC $ Kebabs (1000's) (ECON8069)[14]Source: Notes & Review - ECON8069 Business Economics.pdf- Government should help guide consumer choice - Some decisions are very complex and individuals do not have enough information - If an individual behaviour benefits the larger society, the government should encourage that behaviour -> Positive Externality Xiaotong原创 5 Perfect Competition Key Ingredient - Firm and product are homogenous - Firm and consumer are "price-taker" - Firm profit-maximize & consumer surplus-maximize - Firm can freely entry and exist the market Profit · Accounting profit ---- revenue - explicit cost Economic profit - ---- revenue - explicit cost - implicit cost (expense) (opportunity cost) · The price-taking firm - Firm choose to sell as much as they want at a market price - Price = Marginal Revenue = Average Revenue - Firm level - demand is perfectly elastic Market level ----- may not · Short run o Total cost = Variable cost + Fixed cost o Per unit cost Average total cost q 1 ATC approaches AVC Average fixed cost q 1 AFC Į Average variable cost ---- AVC = VC / q MC < AVC ------ AVC Į ----- ATCĮ Marginal cost- MC = ATC/Aq = AVC/Aq MC> AVC ------ AVC 1 ----- ATCÎ Main variable cost = cost of Labour = w x L = VC Marginal Product of Labour: MPL = = 9 --- diminishing Marginal cost_ ----[16]Source: Notes & Review - ECON8069 Business Economics.pdf· Long run All inputs are variable ----- high production > more capital (K) Search for minimum productions ------ efficient combination of capital and labour o Low quantity level ---- ATCSR is lower with low capital High quantity level ---- AT CSR is lower with a lot of capital ATCLR curve is the locus of the minimums of AT Csp curve -> all the minimum points of AT CSR curve O MCLR = Aq Aq MCLR < ATC ------ ATC \ MCLR > ATC ------ ATC 1 o Thinking on the Margin Maximize profit increase production until MR = MC o Break-even point = Shut-down point Price = ATCLR = AVCLR > choose capital so that minimum AT CSR = minimum AVCSR Economic profit = 0 (normal economic profit) accounting profit is positive 原料 o Returns to scale ---- production amounts Input > y(K, L) capital and labour WIE - Constant proportional increase in all input > same percentage increase in outcome - Increasing - increase in all input > more than proportional percentage increase in outcome - Decreasing --- -- increase in all input > less than proportional percentage increase in outcome o Economies to scale decreasing ATCLR curve (q 1 > ATCLR4) ----- production 1 > return î Diseconomies to scale ---- increasing ATCLR curve (q 1 > ATCLR1) ----- production 1 > return _ o Typical firm properly manage production cost - Economies of scale low output levels - Constant returns to scale moderate output levels - Diseconomies to scale high output levels Minimum efficient scale the smallest production level which minimums AT CLR (any more output will cause ATC increase) Economies of Scope is a related, but distinct ---- Where ATC declines as different goods are produced o Firm mergers (reasons) - Face economies to scale - reduce ATC (e. g. technology + new ideas) - Face economies to scope - -reduce ATC (e. g. software + computer) - They can more efficiently combine production technologies[23]Source: ECON8069 Lecture 5.pdfFirm Exit (ECON8069) Lecture 5 36 / 39 Firm Exit (ECON8069) Lecture 5 36 / 39 Long-Run Equilibrium That is, when price equal minimum ATCLR. 1. ATCLR is minimised, so goods are produced at the lowest possible cost. 2. Capital is allocated efficiently; firms are neither over- nor under-capitalised. (ECON8069) Lecture 5 37 / 39 Comparative Statics - An Increase in Demand Suppose there is an increase in demand in the market. What happens in the short-run and long-run, at the firm-level and the market-level? (ECON8069) Lecture 5 38 / 39[24]Source: ECON8069 Lecture 5.pdf(ECON8069) Lecture 5 2 / 39 Admin · Quiz 2 Review (ECON8069) Lecture 5 3 / 39 Admin · Quiz 2 Review (ECON8069) Lecture 5 3 / 39 Main Ingredients for Perfect Competition A market is perfectly competitive if it has a number of key ingredients: (ECON8069) Lecture 5 4 / 39 Economic Profit and Accounting Profit · They pay $400,000 is operating expenses (guns, poisons, fake passports, etc. )[26]Source: ECON8069 Lecture 5.pdf(ECON8069) Lecture 5 5 / 39 Economic Profit and Accounting Profit · They pay $400,000 is operating expenses (guns, poisons, fake passports, etc. ) (ECON8069) Lecture 5 5 / 39 Economic Costs and Accounting Costs Accounting Profit A firm's Accounting Profit is their Revenue minus their Costs. Economic Profit A firm's Economic Profit is the difference between their current profit, and the profit from their next-best alternative. Equivalently, Economic Profit is Revenue minus explicit costs minus opportunity costs. (ECON8069) Lecture 5 6 / 39 The Price-Taking Firm (ECON8069) Lecture 5 7 / 39[27]Source: ECON8069 Lecture 5.pdf(ECON8069) Lecture 5 26 / 39 Long Run Costs (ECON8069) Lecture 5 26 / 39 Long Run Costs (ECON8069) Lecture 5 26 / 39 Perfect Competition ECON8069 - Lecture 5 Australian National University (ECON8069) Lecture 5 1 / 39 Perfect Competition · Per-unit Costs Textbook: Section 6. 5, 6. 6. Chapter 7.[29]Source: ECON8069 Lecture 5.pdfThe Long Run (ECON8069) Lecture 5 27 / 39 Thinking on the Margin AVCLR = ATCLR means the minimum AVCLR is the minimum ATCLR. (ECON8069) Lecture 5 28 / 39 Returns to Scale Returns to Scale is a Long Run production concept regarding production amounts in the long run. (ECON8069) Lecture 5 29 / 39 Returns to Scale Returns to Scale is a Long Run production concept regarding production amounts in the long run. (ECON8069) Lecture 5 29 / 39 Returns to Scale[30]Source: ECON8069 Lecture 5.pdf(ECON8069) Lecture 5 20 / 39 Short Run Profit - Summary (ECON8069) Lecture 5 21 / 39 Short Run Profit - Summary (ECON8069) Lecture 5 21 / 39 Short-Run Profit Cut-offs Zero Profit - The Break-Even Point $ - MC AVC - ATC q (ECON8069)[33]Source: ECON8069 Lecture 5.pdfq (ECON8069) Lecture 5 22 / 39 Short-Run Profit The Shut-Down Condition $ - MC AVC - ATC q (ECON8069) Lecture 5 23 / 39 Short-Run Profit The Shut-Down Condition $ - MC[36]Source: ECON8069 Lecture 5.pdf39 / 39 Comparative Statics - A Decrease in Demand Suppose there is an decrease in demand in the market. What happens in the short-run and long-run, at the firm-level and the market-level? decreasing market price in SR firm exit in LR decrease in supply (shift left) in LR negative SR profit (ECON8069) Lecture 5 39 / 39 Comparative Statics - A Decrease in Demand Suppose there is an decrease in demand in the market. What happens in the short-run and long-run, at the firm-level and the market-level? decreasing market price in SR firm exit in LR decrease in supply (shift left) in LR negative SR profit · Results: · Less firms in industry (ECON8069) Lecture 5 39 / 39 Other Interesting Comparative Statics (ECON8069)[38]Source: ECON8069 Lecture 5.pdfPer Unit Costs (ECON8069) Lecture 5 11 / 39 Per Unit Costs Why is ATC = AVC? (ECON8069) Lecture 5 11 / 39 More about Marginal Costs (ECON8069) Lecture 5 12 / 39 More about Marginal Costs MC = AVC ∆q = AVC /AL Aq/AL = MPL w (ECON8069) Lecture 5 12 / 39 More about Marginal Costs MC =[39]Source: ECON8069 Lecture 5.pdf$ - - MC AVC - ATC Po q0 q (ECON8069) Lecture 5 19 / 39 Short-Run Profit SR Costs and Profit at Medium Price $ - MC AVC ATC ATC0 Po.

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ECON8069 - Tutorial 5, Week 6 Summary

This tutorial explores various concepts in microeconomics, focusing on cost curves, production decisions, market structures, and the impact of technological and economic changes on firms.

1. Bicycle Manufacturing Firm Analysis

This section analyzes the cost structure of a hypothetical bicycle manufacturer and advises on optimal production levels based on market prices.

• Key Cost Information:

  • Minimum Average Variable Cost (AVC): $120 per bike at 300 bikes produced.
  • Minimum Average Total Cost (ATC): $200 per bike at 400 bikes produced.
  • Marginal Cost (MC) at 500 bikes: $250.

• a) Diagram of Cost Curves:

  • The diagram would typically show U-shaped AVC, ATC, and MC curves.
  • The AVC curve would be at its minimum at 300 units.
  • The ATC curve would be at its minimum at 400 units.
  • The MC curve intersects both AVC and ATC at their respective minimum points.
  • At 500 units, the MC is $250, indicating it is rising and above the ATC at that output level.

• b) Production Advice at Market Price $250:

  • Recommendation: Produce 500 bikes.
  • Reasoning: At a market price of $250, the price is greater than the marginal cost ($250) at an output of 500 bikes. To maximize profits, the firm should produce at the output level where Price = Marginal Cost (or as close as possible if exact equality isn't achievable at a specific output). Since MC at 500 bikes is $250, this is the profit-maximizing output.

• c) Production Advice at Market Price $200:

  • Recommendation: Produce 400 bikes.
  • Reasoning: At a market price of $200, the price is equal to the minimum Average Total Cost (ATC). Producing 400 bikes would mean the firm earns zero economic profit, covering all its costs, including a normal rate of return. Producing more than 400 bikes would lead to MC > Price, resulting in losses. Producing less than 400 bikes would mean the firm is not covering its full costs at the minimum ATC point.

• d) Shutdown Price:

  • Recommendation: The firm should stop making bikes if the price falls below its minimum Average Variable Cost (AVC).
  • Shutdown Price: $120 per bike.
  • Reasoning: The shutdown point occurs where Price = Minimum AVC. If the price is below the minimum AVC, the firm cannot even cover its variable costs, and it is better to shut down production to minimize losses (losses would be limited to fixed costs).

2. Harley-Davidson's Cost Reduction Strategy

This section explains how Harley-Davidson reduced inventory to improve competitiveness.

• Problem: Harley-Davidson was experiencing significant financial losses in the 1980s.
• Solution: Management substantially reduced inventory of tools, components, and parts.
• Explanation of Cost Reduction:
  • Reduced Holding Costs: Lower inventory means less money tied up in stock, reducing storage costs (warehouse space, insurance, security) and the risk of obsolescence or damage.
  • Improved Efficiency (Just-In-Time - JIT): Reducing inventory often implies a move towards a Just-In-Time production system. This means parts arrive just as they are needed, reducing work-in-progress inventory and streamlining the production flow.
  • Quality Improvement: With less inventory, defects become more apparent faster, encouraging a focus on quality control and reducing rework or scrap.
  • Increased Competitiveness: By reducing costs and potentially improving quality and efficiency, Harley-Davidson could better compete with Japanese manufacturers, who were known for their efficient production methods and lower costs.

3. Sushi Smith's Economic Situations

This section analyzes different profit scenarios for a sushi business, Sushi Smith.

• a) Zero Economic Profits:

  • Situation: Sushi Smith is producing and selling sushi but reporting zero economic profits.
  • Explanation: Zero economic profit means the firm is earning a normal profit. This is the minimum level of profit necessary to keep the firm in business. Total Revenue equals Total Costs, where Total Costs include both explicit (out-of-pocket) costs and implicit costs (opportunity cost of resources, like the owner's time and capital). The firm is covering all its costs, including a return that is just sufficient to satisfy the owner's opportunity cost.

• b) Negative Profits but Remaining in Business:

  • Situation: A $1 per bento box contribution to PARSA leads to negative profits, yet the business continues.
  • Explanation: The firm is reporting negative economic profits (losses). However, it remains in business because the market price ($P$) is still greater than the Average Variable Cost (AVC).
  • Shutdown Condition: A firm should only shut down in the short run if Price < AVC.
  • Reasoning: By continuing to operate, Sushi Smith is covering all its variable costs and contributing some amount towards its fixed costs. If it were to shut down, its losses would be equal to its total fixed costs. By staying open, its losses are less than its total fixed costs.

• c) Wage Cut Improving Company Position:

  • Situation: Workers agree to a pay cut.
  • Explanation: A cut in wages reduces the firm's variable costs (assuming wages are a significant component of variable costs).
  • Impact:
    • Lower Average Variable Cost (AVC): The AVC curve shifts downwards.
    • Lower Average Total Cost (ATC): The ATC curve also shifts downwards.
    • Potential for Profitability: If the market price is now above the new, lower ATC, the firm can move from reporting losses to zero or positive economic profits. Even if it remains in loss, the losses are reduced, improving its financial position and increasing the likelihood of staying in business.

4. Perfectly Competitive Plumbing Market in Canberra

This section examines the plumbing market, assuming perfect competition and U-shaped long-run average total cost (LRATC) curves.

• a) Long-Run Equilibrium in a Perfectly Competitive Market:

  • Diagram: The diagram shows the market supply and demand, and the individual firm's cost curves.
  • Characteristics:
    • Price equals Minimum LRATC: In the long run, firms enter or exit the market until the price (P) is driven down to the minimum point of the Long-Run Average Total Cost (LRATC) curve.
    • Zero Economic Profit: At this price, firms earn zero economic profit (normal profit).
    • Quantity Produced: Each firm produces at the output level where MC = minimum LRATC.
    • Market Adjustment: If the initial price is above minimum LRATC, positive economic profits attract new firms (entry), increasing market supply and lowering the price. If the initial price is below minimum LRATC, firms incur losses, leading to exit, decreasing market supply and raising the price.

• b) Impact of Technological Change (PVC Pipes):

  • Change: Shift from pottery/concrete to cheaper, easier-to-install PVC pipes.
  • Effect on Costs: This technological change reduces the cost of installation and materials for plumbers. This means the Average Total Cost (ATC) and Average Variable Cost (AVC) curves for individual plumbing firms shift downwards. The minimum point of the LRATC curve will be at a lower cost level.
  • Short-Run Effects:
    • Existing Firms: Firms now have lower costs. If the market price hasn't changed yet, they will experience positive economic profits because the price will be above their new, lower minimum LRATC.
    • Market Entry: These short-run profits will attract new firms to enter the plumbing market.
  • Long-Run Effects:
    • Increased Market Supply: Entry of new firms shifts the market supply curve to the right.
    • Price Decrease: The increased supply leads to a decrease in the market price for plumbing services.
    • New Equilibrium: The market will reach a new long-run equilibrium where the price is equal to the new, lower minimum LRATC. Firms will again be earning zero economic profit, but at a lower price level. The number of firms in the market will likely increase.

根据ECON8069 Tutorial 5的全部资料（包括Lecture 5和Notes），以下是详细答案与解释：

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1. 自行车厂成本曲线与决策

（a）作图说明成本曲线

已知条件：

• 最小平均变动成本（AVC）= $120，在产量300辆时达到；
• 最小平均总成本（ATC）= $200，在产量400辆时达到；
• 产量500时，边际成本（MC）= $250。

分析：

• AVC曲线在300单位处达到最低点（$120）；
• ATC曲线在400单位处达到最低点（$200）；
• MC曲线在产量300和400时分别穿过AVC、ATC的最低点；
• 产量500，MC = $250，大于ATC最小点，说明MC曲线此时已高于ATC[2]Source: ECON8069 Tutorial 5.pdfECON8069 - Tutorial 5, Week 6 1. You are working as a consultant, consulting for a small bicycle manufactory. You are informed that average variable cost reaches a minimum of $120 per bike at 300 bikes produced; that average total cost reaches a minimum of $200 per bike at 400 bikes produced; and that at an output of 500 bikes, the marginal cost is $250. a) Draw a diagram illustrating the cost curves for the above bicycle firm. b) If the market price is $250 per bike, how many bikes would you advise the manufactory to produce? c) If the market price were instead $200 per bike, how many bikes would you advise the manufactory to produce? d) At what prices would you advise the firm to stop making bikes altogether? 2. In the 1980's, the American motorcycle manufacturer Harley-Davidson was los- ing millions of dollars each year, and was considering shutting down entirely. To avoid collapse, management substantially reduced its inventory of tools, compo- nents, and parts at its factory. Explain how this change could have (and did) enable Harley-Davidson to reduce production costs, and become more competitive with, particularly Japanese, competitors. 3. Explain, including the use of appropriate diagrams, the following situations. a) Sushi Smith in Kambri is producing and selling sushi, but is reporting zero economic profits. b) The university declares that one dollar from every bento box sold this year must go to PARSA. Sushi Smith starts to report negative profits, but remains in business. c) Workers at Sushi Smith agree to a small pay cut to help ensure the company stays open. Explain how a cut in wages might improve the company's position. 4. Searching for "plumbers" in the yellow pages in the ACT gives 207 results. Given there so many plumbers, assume the plumbing market in Canberra is perfectly competitive, with each firm having a u-shaped long run average total cost curve. a) Using an appropriate diagram, describe the long-run equilibrium in the plumb- ing market. b) Over the last 50 years or so, plumbing has changed from being predominantly pottery and concrete to predominantly PVC which is cheaper and easier to install. Would this change have caused firms to enter or leave the plumbing market? Explain the short- and long-run effects of this change on the market for plumbers.[13]Source: ECON8069 Lecture 5.pdfThe Long Run (ECON8069) Lecture 5 27 / 39 Thinking on the Margin AVCLR = ATCLR means the minimum AVCLR is the minimum ATCLR. (ECON8069) Lecture 5 28 / 39 Returns to Scale Returns to Scale is a Long Run production concept regarding production amounts in the long run. (ECON8069) Lecture 5 29 / 39 Returns to Scale Returns to Scale is a Long Run production concept regarding production amounts in the long run. (ECON8069) Lecture 5 29 / 39 Returns to Scale[25]Source: Notes & Review - ECON8069 Business Economics.pdf· Long run All inputs are variable ----- high production > more capital (K) Search for minimum productions ------ efficient combination of capital and labour o Low quantity level ---- ATCSR is lower with low capital High quantity level ---- AT CSR is lower with a lot of capital ATCLR curve is the locus of the minimums of AT Csp curve -> all the minimum points of AT CSR curve O MCLR = Aq Aq MCLR < ATC ------ ATC \ MCLR > ATC ------ ATC 1 o Thinking on the Margin Maximize profit increase production until MR = MC o Break-even point = Shut-down point Price = ATCLR = AVCLR > choose capital so that minimum AT CSR = minimum AVCSR Economic profit = 0 (normal economic profit) accounting profit is positive 原料 o Returns to scale ---- production amounts Input > y(K, L) capital and labour WIE - Constant proportional increase in all input > same percentage increase in outcome - Increasing - increase in all input > more than proportional percentage increase in outcome - Decreasing --- -- increase in all input > less than proportional percentage increase in outcome o Economies to scale decreasing ATCLR curve (q 1 > ATCLR4) ----- production 1 > return î Diseconomies to scale ---- increasing ATCLR curve (q 1 > ATCLR1) ----- production 1 > return _ o Typical firm properly manage production cost - Economies of scale low output levels - Constant returns to scale moderate output levels - Diseconomies to scale high output levels Minimum efficient scale the smallest production level which minimums AT CLR (any more output will cause ATC increase) Economies of Scope is a related, but distinct ---- Where ATC declines as different goods are produced o Firm mergers (reasons) - Face economies to scale - reduce ATC (e. g. technology + new ideas) - Face economies to scope - -reduce ATC (e. g. software + computer) - They can more efficiently combine production technologies[14]Source: ECON8069 Lecture 5.pdfATC * AVC* = Px q* q (ECON8069) Lecture 5 23 / 39 Short-Run Cutoffs (ECON8069) Lecture 5 24 / 39 Short-Run Cutoffs (ECON8069) Lecture 5 24 / 39 The Long Run (ECON8069) Lecture 5 25 / 39 Long Run Costs。

（b）市场价$250时建议产量

• 利润最大化规则是“产量使得 $P = MC$”，即边际成本等于市场价格；
• 当$P=250$时，MC恰好等于250，建议生产500辆；
• 因为超过500时MC会高于P，不再增加产量[2]Source: ECON8069 Tutorial 5.pdfECON8069 - Tutorial 5, Week 6 1. You are working as a consultant, consulting for a small bicycle manufactory. You are informed that average variable cost reaches a minimum of $120 per bike at 300 bikes produced; that average total cost reaches a minimum of $200 per bike at 400 bikes produced; and that at an output of 500 bikes, the marginal cost is $250. a) Draw a diagram illustrating the cost curves for the above bicycle firm. b) If the market price is $250 per bike, how many bikes would you advise the manufactory to produce? c) If the market price were instead $200 per bike, how many bikes would you advise the manufactory to produce? d) At what prices would you advise the firm to stop making bikes altogether? 2. In the 1980's, the American motorcycle manufacturer Harley-Davidson was los- ing millions of dollars each year, and was considering shutting down entirely. To avoid collapse, management substantially reduced its inventory of tools, compo- nents, and parts at its factory. Explain how this change could have (and did) enable Harley-Davidson to reduce production costs, and become more competitive with, particularly Japanese, competitors. 3. Explain, including the use of appropriate diagrams, the following situations. a) Sushi Smith in Kambri is producing and selling sushi, but is reporting zero economic profits. b) The university declares that one dollar from every bento box sold this year must go to PARSA. Sushi Smith starts to report negative profits, but remains in business. c) Workers at Sushi Smith agree to a small pay cut to help ensure the company stays open. Explain how a cut in wages might improve the company's position. 4. Searching for "plumbers" in the yellow pages in the ACT gives 207 results. Given there so many plumbers, assume the plumbing market in Canberra is perfectly competitive, with each firm having a u-shaped long run average total cost curve. a) Using an appropriate diagram, describe the long-run equilibrium in the plumb- ing market. b) Over the last 50 years or so, plumbing has changed from being predominantly pottery and concrete to predominantly PVC which is cheaper and easier to install. Would this change have caused firms to enter or leave the plumbing market? Explain the short- and long-run effects of this change on the market for plumbers.[20]Source: Notes & Review - ECON8069 Business Economics.pdfMC = Ag - Aq / AL - AVC/AL W MPL o Thinking on the Margin Firm maximize profit ------ increase production until MR = MC iamining 原创 o Short-run Profit Short-run Profit Cut-off SR Costs and Profit at High Price $ MC, S Po ATCo ATC AVC qo q ATC <p <AVC Loss but Open SR Costs and Profit at Medium Price $ MC, S ATE ATCO AVe po p = AVC Loss (=FC) & Close The Shut-Down Condition $。

（c）市场价$200时建议产量

• $200等于ATC的最小值（经济利润为零），MC在400辆时会等于$200，建议产量400；
• 如果生产更多，则MC>200，利润开始下降[2]Source: ECON8069 Tutorial 5.pdfECON8069 - Tutorial 5, Week 6 1. You are working as a consultant, consulting for a small bicycle manufactory. You are informed that average variable cost reaches a minimum of $120 per bike at 300 bikes produced; that average total cost reaches a minimum of $200 per bike at 400 bikes produced; and that at an output of 500 bikes, the marginal cost is $250. a) Draw a diagram illustrating the cost curves for the above bicycle firm. b) If the market price is $250 per bike, how many bikes would you advise the manufactory to produce? c) If the market price were instead $200 per bike, how many bikes would you advise the manufactory to produce? d) At what prices would you advise the firm to stop making bikes altogether? 2. In the 1980's, the American motorcycle manufacturer Harley-Davidson was los- ing millions of dollars each year, and was considering shutting down entirely. To avoid collapse, management substantially reduced its inventory of tools, compo- nents, and parts at its factory. Explain how this change could have (and did) enable Harley-Davidson to reduce production costs, and become more competitive with, particularly Japanese, competitors. 3. Explain, including the use of appropriate diagrams, the following situations. a) Sushi Smith in Kambri is producing and selling sushi, but is reporting zero economic profits. b) The university declares that one dollar from every bento box sold this year must go to PARSA. Sushi Smith starts to report negative profits, but remains in business. c) Workers at Sushi Smith agree to a small pay cut to help ensure the company stays open. Explain how a cut in wages might improve the company's position. 4. Searching for "plumbers" in the yellow pages in the ACT gives 207 results. Given there so many plumbers, assume the plumbing market in Canberra is perfectly competitive, with each firm having a u-shaped long run average total cost curve. a) Using an appropriate diagram, describe the long-run equilibrium in the plumb- ing market. b) Over the last 50 years or so, plumbing has changed from being predominantly pottery and concrete to predominantly PVC which is cheaper and easier to install. Would this change have caused firms to enter or leave the plumbing market? Explain the short- and long-run effects of this change on the market for plumbers.[20]Source: Notes & Review - ECON8069 Business Economics.pdfMC = Ag - Aq / AL - AVC/AL W MPL o Thinking on the Margin Firm maximize profit ------ increase production until MR = MC iamining 原创 o Short-run Profit Short-run Profit Cut-off SR Costs and Profit at High Price $ MC, S Po ATCo ATC AVC qo q ATC <p <AVC Loss but Open SR Costs and Profit at Medium Price $ MC, S ATE ATCO AVe po p = AVC Loss (=FC) & Close The Shut-Down Condition $[25]Source: Notes & Review - ECON8069 Business Economics.pdf· Long run All inputs are variable ----- high production > more capital (K) Search for minimum productions ------ efficient combination of capital and labour o Low quantity level ---- ATCSR is lower with low capital High quantity level ---- AT CSR is lower with a lot of capital ATCLR curve is the locus of the minimums of AT Csp curve -> all the minimum points of AT CSR curve O MCLR = Aq Aq MCLR < ATC ------ ATC \ MCLR > ATC ------ ATC 1 o Thinking on the Margin Maximize profit increase production until MR = MC o Break-even point = Shut-down point Price = ATCLR = AVCLR > choose capital so that minimum AT CSR = minimum AVCSR Economic profit = 0 (normal economic profit) accounting profit is positive 原料 o Returns to scale ---- production amounts Input > y(K, L) capital and labour WIE - Constant proportional increase in all input > same percentage increase in outcome - Increasing - increase in all input > more than proportional percentage increase in outcome - Decreasing --- -- increase in all input > less than proportional percentage increase in outcome o Economies to scale decreasing ATCLR curve (q 1 > ATCLR4) ----- production 1 > return î Diseconomies to scale ---- increasing ATCLR curve (q 1 > ATCLR1) ----- production 1 > return _ o Typical firm properly manage production cost - Economies of scale low output levels - Constant returns to scale moderate output levels - Diseconomies to scale high output levels Minimum efficient scale the smallest production level which minimums AT CLR (any more output will cause ATC increase) Economies of Scope is a related, but distinct ---- Where ATC declines as different goods are produced o Firm mergers (reasons) - Face economies to scale - reduce ATC (e. g. technology + new ideas) - Face economies to scope - -reduce ATC (e. g. software + computer) - They can more efficiently combine production technologies。

（d）建议停止生产的价格

• 关停点为最小AVC（$120），即若市场价$P<120$，连变动成本都覆盖不了，应关停生产；
• 即$P<120$时建议停止生产[2]Source: ECON8069 Tutorial 5.pdfECON8069 - Tutorial 5, Week 6 1. You are working as a consultant, consulting for a small bicycle manufactory. You are informed that average variable cost reaches a minimum of $120 per bike at 300 bikes produced; that average total cost reaches a minimum of $200 per bike at 400 bikes produced; and that at an output of 500 bikes, the marginal cost is $250. a) Draw a diagram illustrating the cost curves for the above bicycle firm. b) If the market price is $250 per bike, how many bikes would you advise the manufactory to produce? c) If the market price were instead $200 per bike, how many bikes would you advise the manufactory to produce? d) At what prices would you advise the firm to stop making bikes altogether? 2. In the 1980's, the American motorcycle manufacturer Harley-Davidson was los- ing millions of dollars each year, and was considering shutting down entirely. To avoid collapse, management substantially reduced its inventory of tools, compo- nents, and parts at its factory. Explain how this change could have (and did) enable Harley-Davidson to reduce production costs, and become more competitive with, particularly Japanese, competitors. 3. Explain, including the use of appropriate diagrams, the following situations. a) Sushi Smith in Kambri is producing and selling sushi, but is reporting zero economic profits. b) The university declares that one dollar from every bento box sold this year must go to PARSA. Sushi Smith starts to report negative profits, but remains in business. c) Workers at Sushi Smith agree to a small pay cut to help ensure the company stays open. Explain how a cut in wages might improve the company's position. 4. Searching for "plumbers" in the yellow pages in the ACT gives 207 results. Given there so many plumbers, assume the plumbing market in Canberra is perfectly competitive, with each firm having a u-shaped long run average total cost curve. a) Using an appropriate diagram, describe the long-run equilibrium in the plumb- ing market. b) Over the last 50 years or so, plumbing has changed from being predominantly pottery and concrete to predominantly PVC which is cheaper and easier to install. Would this change have caused firms to enter or leave the plumbing market? Explain the short- and long-run effects of this change on the market for plumbers.[27]Source: ECON8069 Lecture 5.pdfq (ECON8069) Lecture 5 22 / 39 Short-Run Profit The Shut-Down Condition $ - MC AVC - ATC q (ECON8069) Lecture 5 23 / 39 Short-Run Profit The Shut-Down Condition $ - MC。

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2. Harley-Davidson降低库存对成本的影响

• 核心原因：
  • 降低库存（如备件、原材料）可显著减少仓储和持有成本；
  • 采用“准时制”（Just-in-Time）生产或库存管理能提升资金使用效率，减少浪费和呆滞库存损失；
  • 快速暴露生产和流程中的问题，促进质量控制和流程改进；
  • 提高效率，缩短生产周期，有助于企业与成本更低和效率更高的竞争对手（如日本厂商）竞争[2]Source: ECON8069 Tutorial 5.pdfECON8069 - Tutorial 5, Week 6 1. You are working as a consultant, consulting for a small bicycle manufactory. You are informed that average variable cost reaches a minimum of $120 per bike at 300 bikes produced; that average total cost reaches a minimum of $200 per bike at 400 bikes produced; and that at an output of 500 bikes, the marginal cost is $250. a) Draw a diagram illustrating the cost curves for the above bicycle firm. b) If the market price is $250 per bike, how many bikes would you advise the manufactory to produce? c) If the market price were instead $200 per bike, how many bikes would you advise the manufactory to produce? d) At what prices would you advise the firm to stop making bikes altogether? 2. In the 1980's, the American motorcycle manufacturer Harley-Davidson was los- ing millions of dollars each year, and was considering shutting down entirely. To avoid collapse, management substantially reduced its inventory of tools, compo- nents, and parts at its factory. Explain how this change could have (and did) enable Harley-Davidson to reduce production costs, and become more competitive with, particularly Japanese, competitors. 3. Explain, including the use of appropriate diagrams, the following situations. a) Sushi Smith in Kambri is producing and selling sushi, but is reporting zero economic profits. b) The university declares that one dollar from every bento box sold this year must go to PARSA. Sushi Smith starts to report negative profits, but remains in business. c) Workers at Sushi Smith agree to a small pay cut to help ensure the company stays open. Explain how a cut in wages might improve the company's position. 4. Searching for "plumbers" in the yellow pages in the ACT gives 207 results. Given there so many plumbers, assume the plumbing market in Canberra is perfectly competitive, with each firm having a u-shaped long run average total cost curve. a) Using an appropriate diagram, describe the long-run equilibrium in the plumb- ing market. b) Over the last 50 years or so, plumbing has changed from being predominantly pottery and concrete to predominantly PVC which is cheaper and easier to install. Would this change have caused firms to enter or leave the plumbing market? Explain the short- and long-run effects of this change on the market for plumbers.[9]Source: ECON8069 Lecture 5.pdf(ECON8069) Lecture 5 26 / 39 Long Run Costs (ECON8069) Lecture 5 26 / 39 Long Run Costs (ECON8069) Lecture 5 26 / 39 Perfect Competition ECON8069 - Lecture 5 Australian National University (ECON8069) Lecture 5 1 / 39 Perfect Competition · Per-unit Costs Textbook: Section 6. 5, 6. 6. Chapter 7.[19]Source: Notes & Review - ECON8069 Business Economics.pdfEquil. Price ? Equil. Quantity V Firms & Incentives · Price-takers (set by market) ---- choose production levels to maximize profits · Production - Variable factor Input can be changed in a certain period of time & changes if the level of out put (labor) - Fixed factor Input cannot be changed in the short-run, regardless of how much output is produced (capital) · Long run All of the firm's inputs can be changed · Short run o Total cost = Variable cost + Fixed cost - Variable cost --- associated with the variable factor of production - Fixed cost associated with the fixed factor of production o Marginal cost Change in total cost associated with an additional unit of out put +variable cost (fixed cost do not change) o Opportunity / Implicit cost The alternative use of the money that's invested in capital (interest earnings) / of a worker's time Profit =Total revenues - Total Costs Profit = TR - TC - Total revenue (TR = P x Q) & Total cost (TC = ATC x Q) - Accounting profit = TR - TC (explicit only) - Economic profit = TR - TC (explicit + implicit / opportunity cost) Profit = (P x Q) - (ATC x Q) = (P - ATC) xQ Price fixed -> focus: maximize profit & variable / marginal cost (actual level of profit) (total cost) 原創 Producer Surplus Producer Surplus = Total Revenue - Variable Cost Total Revenue ---- sum of Marginal Revenue = p x q Total Cost -- sum of Marginal Cost。

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3. Sushi Smith利润情形

（a）零经济利润情形

• 企业覆盖所有机会成本，但没有超额收益；
• 总收入=总成本（含显性和隐性成本），为“正常利润”状态；
• 若$P=ATC$，即经济利润为零[2]Source: ECON8069 Tutorial 5.pdfECON8069 - Tutorial 5, Week 6 1. You are working as a consultant, consulting for a small bicycle manufactory. You are informed that average variable cost reaches a minimum of $120 per bike at 300 bikes produced; that average total cost reaches a minimum of $200 per bike at 400 bikes produced; and that at an output of 500 bikes, the marginal cost is $250. a) Draw a diagram illustrating the cost curves for the above bicycle firm. b) If the market price is $250 per bike, how many bikes would you advise the manufactory to produce? c) If the market price were instead $200 per bike, how many bikes would you advise the manufactory to produce? d) At what prices would you advise the firm to stop making bikes altogether? 2. In the 1980's, the American motorcycle manufacturer Harley-Davidson was los- ing millions of dollars each year, and was considering shutting down entirely. To avoid collapse, management substantially reduced its inventory of tools, compo- nents, and parts at its factory. Explain how this change could have (and did) enable Harley-Davidson to reduce production costs, and become more competitive with, particularly Japanese, competitors. 3. Explain, including the use of appropriate diagrams, the following situations. a) Sushi Smith in Kambri is producing and selling sushi, but is reporting zero economic profits. b) The university declares that one dollar from every bento box sold this year must go to PARSA. Sushi Smith starts to report negative profits, but remains in business. c) Workers at Sushi Smith agree to a small pay cut to help ensure the company stays open. Explain how a cut in wages might improve the company's position. 4. Searching for "plumbers" in the yellow pages in the ACT gives 207 results. Given there so many plumbers, assume the plumbing market in Canberra is perfectly competitive, with each firm having a u-shaped long run average total cost curve. a) Using an appropriate diagram, describe the long-run equilibrium in the plumb- ing market. b) Over the last 50 years or so, plumbing has changed from being predominantly pottery and concrete to predominantly PVC which is cheaper and easier to install. Would this change have caused firms to enter or leave the plumbing market? Explain the short- and long-run effects of this change on the market for plumbers.[19]Source: Notes & Review - ECON8069 Business Economics.pdfEquil. Price ? Equil. Quantity V Firms & Incentives · Price-takers (set by market) ---- choose production levels to maximize profits · Production - Variable factor Input can be changed in a certain period of time & changes if the level of out put (labor) - Fixed factor Input cannot be changed in the short-run, regardless of how much output is produced (capital) · Long run All of the firm's inputs can be changed · Short run o Total cost = Variable cost + Fixed cost - Variable cost --- associated with the variable factor of production - Fixed cost associated with the fixed factor of production o Marginal cost Change in total cost associated with an additional unit of out put +variable cost (fixed cost do not change) o Opportunity / Implicit cost The alternative use of the money that's invested in capital (interest earnings) / of a worker's time Profit =Total revenues - Total Costs Profit = TR - TC - Total revenue (TR = P x Q) & Total cost (TC = ATC x Q) - Accounting profit = TR - TC (explicit only) - Economic profit = TR - TC (explicit + implicit / opportunity cost) Profit = (P x Q) - (ATC x Q) = (P - ATC) xQ Price fixed -> focus: maximize profit & variable / marginal cost (actual level of profit) (total cost) 原創 Producer Surplus Producer Surplus = Total Revenue - Variable Cost Total Revenue ---- sum of Marginal Revenue = p x q Total Cost -- sum of Marginal Cost[15]Source: Notes & Review - ECON8069 Business Economics.pdf- Government should help guide consumer choice - Some decisions are very complex and individuals do not have enough information - If an individual behaviour benefits the larger society, the government should encourage that behaviour -> Positive Externality Xiaotong原创 5 Perfect Competition Key Ingredient - Firm and product are homogenous - Firm and consumer are "price-taker" - Firm profit-maximize & consumer surplus-maximize - Firm can freely entry and exist the market Profit · Accounting profit ---- revenue - explicit cost Economic profit - ---- revenue - explicit cost - implicit cost (expense) (opportunity cost) · The price-taking firm - Firm choose to sell as much as they want at a market price - Price = Marginal Revenue = Average Revenue - Firm level - demand is perfectly elastic Market level ----- may not · Short run o Total cost = Variable cost + Fixed cost o Per unit cost Average total cost q 1 ATC approaches AVC Average fixed cost q 1 AFC Į Average variable cost ---- AVC = VC / q MC < AVC ------ AVC Į ----- ATCĮ Marginal cost- MC = ATC/Aq = AVC/Aq MC> AVC ------ AVC 1 ----- ATCÎ Main variable cost = cost of Labour = w x L = VC Marginal Product of Labour: MPL = = 9 --- diminishing Marginal cost_ ----。

（b）负利润但持续营业

• 每卖一个便当需上缴$1导致出现经济亏损，但仍在营业；
• 因为$AVC<P<ATC$，即能覆盖变动成本但不能覆盖全部成本，故能继续营业以减少亏损到不超过固定成本；
• 继续营业比立即停业更优（否则损失全部固定成本）[2]Source: ECON8069 Tutorial 5.pdfECON8069 - Tutorial 5, Week 6 1. You are working as a consultant, consulting for a small bicycle manufactory. You are informed that average variable cost reaches a minimum of $120 per bike at 300 bikes produced; that average total cost reaches a minimum of $200 per bike at 400 bikes produced; and that at an output of 500 bikes, the marginal cost is $250. a) Draw a diagram illustrating the cost curves for the above bicycle firm. b) If the market price is $250 per bike, how many bikes would you advise the manufactory to produce? c) If the market price were instead $200 per bike, how many bikes would you advise the manufactory to produce? d) At what prices would you advise the firm to stop making bikes altogether? 2. In the 1980's, the American motorcycle manufacturer Harley-Davidson was los- ing millions of dollars each year, and was considering shutting down entirely. To avoid collapse, management substantially reduced its inventory of tools, compo- nents, and parts at its factory. Explain how this change could have (and did) enable Harley-Davidson to reduce production costs, and become more competitive with, particularly Japanese, competitors. 3. Explain, including the use of appropriate diagrams, the following situations. a) Sushi Smith in Kambri is producing and selling sushi, but is reporting zero economic profits. b) The university declares that one dollar from every bento box sold this year must go to PARSA. Sushi Smith starts to report negative profits, but remains in business. c) Workers at Sushi Smith agree to a small pay cut to help ensure the company stays open. Explain how a cut in wages might improve the company's position. 4. Searching for "plumbers" in the yellow pages in the ACT gives 207 results. Given there so many plumbers, assume the plumbing market in Canberra is perfectly competitive, with each firm having a u-shaped long run average total cost curve. a) Using an appropriate diagram, describe the long-run equilibrium in the plumb- ing market. b) Over the last 50 years or so, plumbing has changed from being predominantly pottery and concrete to predominantly PVC which is cheaper and easier to install. Would this change have caused firms to enter or leave the plumbing market? Explain the short- and long-run effects of this change on the market for plumbers.[11]Source: ECON8069 Lecture 5.pdfLecture 5 22 / 39 Short-Run Profit Cut-offs Zero Profit - The Break-Even Point $ - MC AVC - ATC ∗ p q (ECON8069) Lecture 5 22 / 39 Short-Run Profit Cut-offs Zero Profit - The Break-Even Point $ - MC AVC[24]Source: ECON8069 Lecture 5.pdfLecture 5 20 / 39 Short-Run Profit SR Costs and Profit at Low Price $ - MC AVC - ATC po q0 q (ECON8069) Lecture 5 20 / 39 Short-Run Profit SR Costs and Profit at Low Price $ - MC AVC[27]Source: ECON8069 Lecture 5.pdfq (ECON8069) Lecture 5 22 / 39 Short-Run Profit The Shut-Down Condition $ - MC AVC - ATC q (ECON8069) Lecture 5 23 / 39 Short-Run Profit The Shut-Down Condition $ - MC。

（c）工人降薪影响

• 工资下降减少了变动成本，使AVC、ATC下移；
• 有两种好处：
  1. 若$P$依然小于ATC但大于新AVC，则亏损减少；
  2. 若$P$高于新ATC，可由亏损转为盈利；
• 降低劳动力成本可以延长公司生存，增加盈利可能[2]Source: ECON8069 Tutorial 5.pdfECON8069 - Tutorial 5, Week 6 1. You are working as a consultant, consulting for a small bicycle manufactory. You are informed that average variable cost reaches a minimum of $120 per bike at 300 bikes produced; that average total cost reaches a minimum of $200 per bike at 400 bikes produced; and that at an output of 500 bikes, the marginal cost is $250. a) Draw a diagram illustrating the cost curves for the above bicycle firm. b) If the market price is $250 per bike, how many bikes would you advise the manufactory to produce? c) If the market price were instead $200 per bike, how many bikes would you advise the manufactory to produce? d) At what prices would you advise the firm to stop making bikes altogether? 2. In the 1980's, the American motorcycle manufacturer Harley-Davidson was los- ing millions of dollars each year, and was considering shutting down entirely. To avoid collapse, management substantially reduced its inventory of tools, compo- nents, and parts at its factory. Explain how this change could have (and did) enable Harley-Davidson to reduce production costs, and become more competitive with, particularly Japanese, competitors. 3. Explain, including the use of appropriate diagrams, the following situations. a) Sushi Smith in Kambri is producing and selling sushi, but is reporting zero economic profits. b) The university declares that one dollar from every bento box sold this year must go to PARSA. Sushi Smith starts to report negative profits, but remains in business. c) Workers at Sushi Smith agree to a small pay cut to help ensure the company stays open. Explain how a cut in wages might improve the company's position. 4. Searching for "plumbers" in the yellow pages in the ACT gives 207 results. Given there so many plumbers, assume the plumbing market in Canberra is perfectly competitive, with each firm having a u-shaped long run average total cost curve. a) Using an appropriate diagram, describe the long-run equilibrium in the plumb- ing market. b) Over the last 50 years or so, plumbing has changed from being predominantly pottery and concrete to predominantly PVC which is cheaper and easier to install. Would this change have caused firms to enter or leave the plumbing market? Explain the short- and long-run effects of this change on the market for plumbers.[20]Source: Notes & Review - ECON8069 Business Economics.pdfMC = Ag - Aq / AL - AVC/AL W MPL o Thinking on the Margin Firm maximize profit ------ increase production until MR = MC iamining 原创 o Short-run Profit Short-run Profit Cut-off SR Costs and Profit at High Price $ MC, S Po ATCo ATC AVC qo q ATC <p <AVC Loss but Open SR Costs and Profit at Medium Price $ MC, S ATE ATCO AVe po p = AVC Loss (=FC) & Close The Shut-Down Condition $[25]Source: Notes & Review - ECON8069 Business Economics.pdf· Long run All inputs are variable ----- high production > more capital (K) Search for minimum productions ------ efficient combination of capital and labour o Low quantity level ---- ATCSR is lower with low capital High quantity level ---- AT CSR is lower with a lot of capital ATCLR curve is the locus of the minimums of AT Csp curve -> all the minimum points of AT CSR curve O MCLR = Aq Aq MCLR < ATC ------ ATC \ MCLR > ATC ------ ATC 1 o Thinking on the Margin Maximize profit increase production until MR = MC o Break-even point = Shut-down point Price = ATCLR = AVCLR > choose capital so that minimum AT CSR = minimum AVCSR Economic profit = 0 (normal economic profit) accounting profit is positive 原料 o Returns to scale ---- production amounts Input > y(K, L) capital and labour WIE - Constant proportional increase in all input > same percentage increase in outcome - Increasing - increase in all input > more than proportional percentage increase in outcome - Decreasing --- -- increase in all input > less than proportional percentage increase in outcome o Economies to scale decreasing ATCLR curve (q 1 > ATCLR4) ----- production 1 > return î Diseconomies to scale ---- increasing ATCLR curve (q 1 > ATCLR1) ----- production 1 > return _ o Typical firm properly manage production cost - Economies of scale low output levels - Constant returns to scale moderate output levels - Diseconomies to scale high output levels Minimum efficient scale the smallest production level which minimums AT CLR (any more output will cause ATC increase) Economies of Scope is a related, but distinct ---- Where ATC declines as different goods are produced o Firm mergers (reasons) - Face economies to scale - reduce ATC (e. g. technology + new ideas) - Face economies to scope - -reduce ATC (e. g. software + computer) - They can more efficiently combine production technologies。

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4. 堪培拉水管工市场分析

（a）长期均衡图示及特征

• 长期均衡时，$P=min(LRATC)$，所有企业获得零经济利润（即仅有正常利润）；
• 企业产量在ATC最低点，资源配置最优，所有企业都是“价格接受者”；
• 若$P>min(LRATC)$，有新企业进入，供给增加直至$P=min(LRATC)$；
• 若$P<min(LRATC)$，企业退出，供给减少直至$P=min(LRATC)$[2]Source: ECON8069 Tutorial 5.pdfECON8069 - Tutorial 5, Week 6 1. You are working as a consultant, consulting for a small bicycle manufactory. You are informed that average variable cost reaches a minimum of $120 per bike at 300 bikes produced; that average total cost reaches a minimum of $200 per bike at 400 bikes produced; and that at an output of 500 bikes, the marginal cost is $250. a) Draw a diagram illustrating the cost curves for the above bicycle firm. b) If the market price is $250 per bike, how many bikes would you advise the manufactory to produce? c) If the market price were instead $200 per bike, how many bikes would you advise the manufactory to produce? d) At what prices would you advise the firm to stop making bikes altogether? 2. In the 1980's, the American motorcycle manufacturer Harley-Davidson was los- ing millions of dollars each year, and was considering shutting down entirely. To avoid collapse, management substantially reduced its inventory of tools, compo- nents, and parts at its factory. Explain how this change could have (and did) enable Harley-Davidson to reduce production costs, and become more competitive with, particularly Japanese, competitors. 3. Explain, including the use of appropriate diagrams, the following situations. a) Sushi Smith in Kambri is producing and selling sushi, but is reporting zero economic profits. b) The university declares that one dollar from every bento box sold this year must go to PARSA. Sushi Smith starts to report negative profits, but remains in business. c) Workers at Sushi Smith agree to a small pay cut to help ensure the company stays open. Explain how a cut in wages might improve the company's position. 4. Searching for "plumbers" in the yellow pages in the ACT gives 207 results. Given there so many plumbers, assume the plumbing market in Canberra is perfectly competitive, with each firm having a u-shaped long run average total cost curve. a) Using an appropriate diagram, describe the long-run equilibrium in the plumb- ing market. b) Over the last 50 years or so, plumbing has changed from being predominantly pottery and concrete to predominantly PVC which is cheaper and easier to install. Would this change have caused firms to enter or leave the plumbing market? Explain the short- and long-run effects of this change on the market for plumbers.[35]Source: ECON8069 Lecture 5.pdfFirm Exit (ECON8069) Lecture 5 36 / 39 Firm Exit (ECON8069) Lecture 5 36 / 39 Long-Run Equilibrium That is, when price equal minimum ATCLR. 1. ATCLR is minimised, so goods are produced at the lowest possible cost. 2. Capital is allocated efficiently; firms are neither over- nor under-capitalised. (ECON8069) Lecture 5 37 / 39 Comparative Statics - An Increase in Demand Suppose there is an increase in demand in the market. What happens in the short-run and long-run, at the firm-level and the market-level? (ECON8069) Lecture 5 38 / 39[25]Source: Notes & Review - ECON8069 Business Economics.pdf· Long run All inputs are variable ----- high production > more capital (K) Search for minimum productions ------ efficient combination of capital and labour o Low quantity level ---- ATCSR is lower with low capital High quantity level ---- AT CSR is lower with a lot of capital ATCLR curve is the locus of the minimums of AT Csp curve -> all the minimum points of AT CSR curve O MCLR = Aq Aq MCLR < ATC ------ ATC \ MCLR > ATC ------ ATC 1 o Thinking on the Margin Maximize profit increase production until MR = MC o Break-even point = Shut-down point Price = ATCLR = AVCLR > choose capital so that minimum AT CSR = minimum AVCSR Economic profit = 0 (normal economic profit) accounting profit is positive 原料 o Returns to scale ---- production amounts Input > y(K, L) capital and labour WIE - Constant proportional increase in all input > same percentage increase in outcome - Increasing - increase in all input > more than proportional percentage increase in outcome - Decreasing --- -- increase in all input > less than proportional percentage increase in outcome o Economies to scale decreasing ATCLR curve (q 1 > ATCLR4) ----- production 1 > return î Diseconomies to scale ---- increasing ATCLR curve (q 1 > ATCLR1) ----- production 1 > return _ o Typical firm properly manage production cost - Economies of scale low output levels - Constant returns to scale moderate output levels - Diseconomies to scale high output levels Minimum efficient scale the smallest production level which minimums AT CLR (any more output will cause ATC increase) Economies of Scope is a related, but distinct ---- Where ATC declines as different goods are produced o Firm mergers (reasons) - Face economies to scale - reduce ATC (e. g. technology + new ideas) - Face economies to scope - -reduce ATC (e. g. software + computer) - They can more efficiently combine production technologies[15]Source: Notes & Review - ECON8069 Business Economics.pdf- Government should help guide consumer choice - Some decisions are very complex and individuals do not have enough information - If an individual behaviour benefits the larger society, the government should encourage that behaviour -> Positive Externality Xiaotong原创 5 Perfect Competition Key Ingredient - Firm and product are homogenous - Firm and consumer are "price-taker" - Firm profit-maximize & consumer surplus-maximize - Firm can freely entry and exist the market Profit · Accounting profit ---- revenue - explicit cost Economic profit - ---- revenue - explicit cost - implicit cost (expense) (opportunity cost) · The price-taking firm - Firm choose to sell as much as they want at a market price - Price = Marginal Revenue = Average Revenue - Firm level - demand is perfectly elastic Market level ----- may not · Short run o Total cost = Variable cost + Fixed cost o Per unit cost Average total cost q 1 ATC approaches AVC Average fixed cost q 1 AFC Į Average variable cost ---- AVC = VC / q MC < AVC ------ AVC Į ----- ATCĮ Marginal cost- MC = ATC/Aq = AVC/Aq MC> AVC ------ AVC 1 ----- ATCÎ Main variable cost = cost of Labour = w x L = VC Marginal Product of Labour: MPL = = 9 --- diminishing Marginal cost_ ----[21]Source: Notes & Review - ECON8069 Business Economics.pdf↓ ↓ no price change no change in profit P= Minimum AT CLR (equilibrium) P= Minimum AT CLR no price change no change in profit 原 Firm level PA MC P1 E S P2 E S2 -Po E0 E AVC q0 92 91 Q q0 91 92 93 Q Firm level P MC ATC ATC = Po[29]Source: Notes & Review - ECON8069 Business Economics.pdfP2 -AVC P1 91 92 90 Q Market level P S2 S1 S0 E3 Po E0 E2 P2 E D1 - - 93 92 91 q0 Q ong Market level P S0 -ATC ATC = Po D1 D0 Cost change P。

（b）PVC技术变革的影响

• PVC管道技术降低了成本，使各企业的ATC、AVC曲线整体下移；
• 短期： 企业盈利（$P>ATC$），市场吸引新企业进入。
• 长期： 企业数增多，市场供给右移，价格回落到新的、较低的$min(LRATC)$；行业长期均衡恢复，但市场价格和成本水平均比变革前更低，行业规模更大[2]Source: ECON8069 Tutorial 5.pdfECON8069 - Tutorial 5, Week 6 1. You are working as a consultant, consulting for a small bicycle manufactory. You are informed that average variable cost reaches a minimum of $120 per bike at 300 bikes produced; that average total cost reaches a minimum of $200 per bike at 400 bikes produced; and that at an output of 500 bikes, the marginal cost is $250. a) Draw a diagram illustrating the cost curves for the above bicycle firm. b) If the market price is $250 per bike, how many bikes would you advise the manufactory to produce? c) If the market price were instead $200 per bike, how many bikes would you advise the manufactory to produce? d) At what prices would you advise the firm to stop making bikes altogether? 2. In the 1980's, the American motorcycle manufacturer Harley-Davidson was los- ing millions of dollars each year, and was considering shutting down entirely. To avoid collapse, management substantially reduced its inventory of tools, compo- nents, and parts at its factory. Explain how this change could have (and did) enable Harley-Davidson to reduce production costs, and become more competitive with, particularly Japanese, competitors. 3. Explain, including the use of appropriate diagrams, the following situations. a) Sushi Smith in Kambri is producing and selling sushi, but is reporting zero economic profits. b) The university declares that one dollar from every bento box sold this year must go to PARSA. Sushi Smith starts to report negative profits, but remains in business. c) Workers at Sushi Smith agree to a small pay cut to help ensure the company stays open. Explain how a cut in wages might improve the company's position. 4. Searching for "plumbers" in the yellow pages in the ACT gives 207 results. Given there so many plumbers, assume the plumbing market in Canberra is perfectly competitive, with each firm having a u-shaped long run average total cost curve. a) Using an appropriate diagram, describe the long-run equilibrium in the plumb- ing market. b) Over the last 50 years or so, plumbing has changed from being predominantly pottery and concrete to predominantly PVC which is cheaper and easier to install. Would this change have caused firms to enter or leave the plumbing market? Explain the short- and long-run effects of this change on the market for plumbers.[35]Source: ECON8069 Lecture 5.pdfFirm Exit (ECON8069) Lecture 5 36 / 39 Firm Exit (ECON8069) Lecture 5 36 / 39 Long-Run Equilibrium That is, when price equal minimum ATCLR. 1. ATCLR is minimised, so goods are produced at the lowest possible cost. 2. Capital is allocated efficiently; firms are neither over- nor under-capitalised. (ECON8069) Lecture 5 37 / 39 Comparative Statics - An Increase in Demand Suppose there is an increase in demand in the market. What happens in the short-run and long-run, at the firm-level and the market-level? (ECON8069) Lecture 5 38 / 39[25]Source: Notes & Review - ECON8069 Business Economics.pdf· Long run All inputs are variable ----- high production > more capital (K) Search for minimum productions ------ efficient combination of capital and labour o Low quantity level ---- ATCSR is lower with low capital High quantity level ---- AT CSR is lower with a lot of capital ATCLR curve is the locus of the minimums of AT Csp curve -> all the minimum points of AT CSR curve O MCLR = Aq Aq MCLR < ATC ------ ATC \ MCLR > ATC ------ ATC 1 o Thinking on the Margin Maximize profit increase production until MR = MC o Break-even point = Shut-down point Price = ATCLR = AVCLR > choose capital so that minimum AT CSR = minimum AVCSR Economic profit = 0 (normal economic profit) accounting profit is positive 原料 o Returns to scale ---- production amounts Input > y(K, L) capital and labour WIE - Constant proportional increase in all input > same percentage increase in outcome - Increasing - increase in all input > more than proportional percentage increase in outcome - Decreasing --- -- increase in all input > less than proportional percentage increase in outcome o Economies to scale decreasing ATCLR curve (q 1 > ATCLR4) ----- production 1 > return î Diseconomies to scale ---- increasing ATCLR curve (q 1 > ATCLR1) ----- production 1 > return _ o Typical firm properly manage production cost - Economies of scale low output levels - Constant returns to scale moderate output levels - Diseconomies to scale high output levels Minimum efficient scale the smallest production level which minimums AT CLR (any more output will cause ATC increase) Economies of Scope is a related, but distinct ---- Where ATC declines as different goods are produced o Firm mergers (reasons) - Face economies to scale - reduce ATC (e. g. technology + new ideas) - Face economies to scope - -reduce ATC (e. g. software + computer) - They can more efficiently combine production technologies[15]Source: Notes & Review - ECON8069 Business Economics.pdf- Government should help guide consumer choice - Some decisions are very complex and individuals do not have enough information - If an individual behaviour benefits the larger society, the government should encourage that behaviour -> Positive Externality Xiaotong原创 5 Perfect Competition Key Ingredient - Firm and product are homogenous - Firm and consumer are "price-taker" - Firm profit-maximize & consumer surplus-maximize - Firm can freely entry and exist the market Profit · Accounting profit ---- revenue - explicit cost Economic profit - ---- revenue - explicit cost - implicit cost (expense) (opportunity cost) · The price-taking firm - Firm choose to sell as much as they want at a market price - Price = Marginal Revenue = Average Revenue - Firm level - demand is perfectly elastic Market level ----- may not · Short run o Total cost = Variable cost + Fixed cost o Per unit cost Average total cost q 1 ATC approaches AVC Average fixed cost q 1 AFC Į Average variable cost ---- AVC = VC / q MC < AVC ------ AVC Į ----- ATCĮ Marginal cost- MC = ATC/Aq = AVC/Aq MC> AVC ------ AVC 1 ----- ATCÎ Main variable cost = cost of Labour = w x L = VC Marginal Product of Labour: MPL = = 9 --- diminishing Marginal cost_ ----[21]Source: Notes & Review - ECON8069 Business Economics.pdf↓ ↓ no price change no change in profit P= Minimum AT CLR (equilibrium) P= Minimum AT CLR no price change no change in profit 原 Firm level PA MC P1 E S P2 E S2 -Po E0 E AVC q0 92 91 Q q0 91 92 93 Q Firm level P MC ATC ATC = Po[29]Source: Notes & Review - ECON8069 Business Economics.pdfP2 -AVC P1 91 92 90 Q Market level P S2 S1 S0 E3 Po E0 E2 P2 E D1 - - 93 92 91 q0 Q ong Market level P S0 -ATC ATC = Po D1 D0 Cost change P。

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参考结构说明

• 题目的每一问都综合引用了Lecture 5、Notes和Tutorial 5对应知识点，涉及短/长期均衡、成本曲线、生产决策、企业进入退出、技术进步影响等核心内容[2]Source: ECON8069 Tutorial 5.pdfECON8069 - Tutorial 5, Week 6 1. You are working as a consultant, consulting for a small bicycle manufactory. You are informed that average variable cost reaches a minimum of $120 per bike at 300 bikes produced; that average total cost reaches a minimum of $200 per bike at 400 bikes produced; and that at an output of 500 bikes, the marginal cost is $250. a) Draw a diagram illustrating the cost curves for the above bicycle firm. b) If the market price is $250 per bike, how many bikes would you advise the manufactory to produce? c) If the market price were instead $200 per bike, how many bikes would you advise the manufactory to produce? d) At what prices would you advise the firm to stop making bikes altogether? 2. In the 1980's, the American motorcycle manufacturer Harley-Davidson was los- ing millions of dollars each year, and was considering shutting down entirely. To avoid collapse, management substantially reduced its inventory of tools, compo- nents, and parts at its factory. Explain how this change could have (and did) enable Harley-Davidson to reduce production costs, and become more competitive with, particularly Japanese, competitors. 3. Explain, including the use of appropriate diagrams, the following situations. a) Sushi Smith in Kambri is producing and selling sushi, but is reporting zero economic profits. b) The university declares that one dollar from every bento box sold this year must go to PARSA. Sushi Smith starts to report negative profits, but remains in business. c) Workers at Sushi Smith agree to a small pay cut to help ensure the company stays open. Explain how a cut in wages might improve the company's position. 4. Searching for "plumbers" in the yellow pages in the ACT gives 207 results. Given there so many plumbers, assume the plumbing market in Canberra is perfectly competitive, with each firm having a u-shaped long run average total cost curve. a) Using an appropriate diagram, describe the long-run equilibrium in the plumb- ing market. b) Over the last 50 years or so, plumbing has changed from being predominantly pottery and concrete to predominantly PVC which is cheaper and easier to install. Would this change have caused firms to enter or leave the plumbing market? Explain the short- and long-run effects of this change on the market for plumbers.[13]Source: ECON8069 Lecture 5.pdfThe Long Run (ECON8069) Lecture 5 27 / 39 Thinking on the Margin AVCLR = ATCLR means the minimum AVCLR is the minimum ATCLR. (ECON8069) Lecture 5 28 / 39 Returns to Scale Returns to Scale is a Long Run production concept regarding production amounts in the long run. (ECON8069) Lecture 5 29 / 39 Returns to Scale Returns to Scale is a Long Run production concept regarding production amounts in the long run. (ECON8069) Lecture 5 29 / 39 Returns to Scale[25]Source: Notes & Review - ECON8069 Business Economics.pdf· Long run All inputs are variable ----- high production > more capital (K) Search for minimum productions ------ efficient combination of capital and labour o Low quantity level ---- ATCSR is lower with low capital High quantity level ---- AT CSR is lower with a lot of capital ATCLR curve is the locus of the minimums of AT Csp curve -> all the minimum points of AT CSR curve O MCLR = Aq Aq MCLR < ATC ------ ATC \ MCLR > ATC ------ ATC 1 o Thinking on the Margin Maximize profit increase production until MR = MC o Break-even point = Shut-down point Price = ATCLR = AVCLR > choose capital so that minimum AT CSR = minimum AVCSR Economic profit = 0 (normal economic profit) accounting profit is positive 原料 o Returns to scale ---- production amounts Input > y(K, L) capital and labour WIE - Constant proportional increase in all input > same percentage increase in outcome - Increasing - increase in all input > more than proportional percentage increase in outcome - Decreasing --- -- increase in all input > less than proportional percentage increase in outcome o Economies to scale decreasing ATCLR curve (q 1 > ATCLR4) ----- production 1 > return î Diseconomies to scale ---- increasing ATCLR curve (q 1 > ATCLR1) ----- production 1 > return _ o Typical firm properly manage production cost - Economies of scale low output levels - Constant returns to scale moderate output levels - Diseconomies to scale high output levels Minimum efficient scale the smallest production level which minimums AT CLR (any more output will cause ATC increase) Economies of Scope is a related, but distinct ---- Where ATC declines as different goods are produced o Firm mergers (reasons) - Face economies to scale - reduce ATC (e. g. technology + new ideas) - Face economies to scope - -reduce ATC (e. g. software + computer) - They can more efficiently combine production technologies[14]Source: ECON8069 Lecture 5.pdfATC * AVC* = Px q* q (ECON8069) Lecture 5 23 / 39 Short-Run Cutoffs (ECON8069) Lecture 5 24 / 39 Short-Run Cutoffs (ECON8069) Lecture 5 24 / 39 The Long Run (ECON8069) Lecture 5 25 / 39 Long Run Costs[9]Source: ECON8069 Lecture 5.pdf(ECON8069) Lecture 5 26 / 39 Long Run Costs (ECON8069) Lecture 5 26 / 39 Long Run Costs (ECON8069) Lecture 5 26 / 39 Perfect Competition ECON8069 - Lecture 5 Australian National University (ECON8069) Lecture 5 1 / 39 Perfect Competition · Per-unit Costs Textbook: Section 6. 5, 6. 6. Chapter 7.[10]Source: ECON8069 Lecture 5.pdfThe Long Run Break-Even Point (ECON8069) Lecture 5 33 / 39 Firm Entry and Exit (ECON8069) Lecture 5 34 / 39 Firm Entry and Exit (ECON8069) Lecture 5 34 / 39 Firm Entry (ECON8069) Lecture 5 35 / 39 Firm Entry (ECON8069) Lecture 5 35 / 39[35]Source: ECON8069 Lecture 5.pdfFirm Exit (ECON8069) Lecture 5 36 / 39 Firm Exit (ECON8069) Lecture 5 36 / 39 Long-Run Equilibrium That is, when price equal minimum ATCLR. 1. ATCLR is minimised, so goods are produced at the lowest possible cost. 2. Capital is allocated efficiently; firms are neither over- nor under-capitalised. (ECON8069) Lecture 5 37 / 39 Comparative Statics - An Increase in Demand Suppose there is an increase in demand in the market. What happens in the short-run and long-run, at the firm-level and the market-level? (ECON8069) Lecture 5 38 / 39[15]Source: Notes & Review - ECON8069 Business Economics.pdf- Government should help guide consumer choice - Some decisions are very complex and individuals do not have enough information - If an individual behaviour benefits the larger society, the government should encourage that behaviour -> Positive Externality Xiaotong原创 5 Perfect Competition Key Ingredient - Firm and product are homogenous - Firm and consumer are "price-taker" - Firm profit-maximize & consumer surplus-maximize - Firm can freely entry and exist the market Profit · Accounting profit ---- revenue - explicit cost Economic profit - ---- revenue - explicit cost - implicit cost (expense) (opportunity cost) · The price-taking firm - Firm choose to sell as much as they want at a market price - Price = Marginal Revenue = Average Revenue - Firm level - demand is perfectly elastic Market level ----- may not · Short run o Total cost = Variable cost + Fixed cost o Per unit cost Average total cost q 1 ATC approaches AVC Average fixed cost q 1 AFC Į Average variable cost ---- AVC = VC / q MC < AVC ------ AVC Į ----- ATCĮ Marginal cost- MC = ATC/Aq = AVC/Aq MC> AVC ------ AVC 1 ----- ATCÎ Main variable cost = cost of Labour = w x L = VC Marginal Product of Labour: MPL = = 9 --- diminishing Marginal cost_ ----[21]Source: Notes & Review - ECON8069 Business Economics.pdf↓ ↓ no price change no change in profit P= Minimum AT CLR (equilibrium) P= Minimum AT CLR no price change no change in profit 原 Firm level PA MC P1 E S P2 E S2 -Po E0 E AVC q0 92 91 Q q0 91 92 93 Q Firm level P MC ATC ATC = Po[20]Source: Notes & Review - ECON8069 Business Economics.pdfMC = Ag - Aq / AL - AVC/AL W MPL o Thinking on the Margin Firm maximize profit ------ increase production until MR = MC iamining 原创 o Short-run Profit Short-run Profit Cut-off SR Costs and Profit at High Price $ MC, S Po ATCo ATC AVC qo q ATC <p <AVC Loss but Open SR Costs and Profit at Medium Price $ MC, S ATE ATCO AVe po p = AVC Loss (=FC) & Close The Shut-Down Condition $[29]Source: Notes & Review - ECON8069 Business Economics.pdfP2 -AVC P1 91 92 90 Q Market level P S2 S1 S0 E3 Po E0 E2 P2 E D1 - - 93 92 91 q0 Q ong Market level P S0 -ATC ATC = Po D1 D0 Cost change P[27]Source: ECON8069 Lecture 5.pdfq (ECON8069) Lecture 5 22 / 39 Short-Run Profit The Shut-Down Condition $ - MC AVC - ATC q (ECON8069) Lecture 5 23 / 39 Short-Run Profit The Shut-Down Condition $ - MC[24]Source: ECON8069 Lecture 5.pdfLecture 5 20 / 39 Short-Run Profit SR Costs and Profit at Low Price $ - MC AVC - ATC po q0 q (ECON8069) Lecture 5 20 / 39 Short-Run Profit SR Costs and Profit at Low Price $ - MC AVC[19]Source: Notes & Review - ECON8069 Business Economics.pdfEquil. Price ? Equil. Quantity V Firms & Incentives · Price-takers (set by market) ---- choose production levels to maximize profits · Production - Variable factor Input can be changed in a certain period of time & changes if the level of out put (labor) - Fixed factor Input cannot be changed in the short-run, regardless of how much output is produced (capital) · Long run All of the firm's inputs can be changed · Short run o Total cost = Variable cost + Fixed cost - Variable cost --- associated with the variable factor of production - Fixed cost associated with the fixed factor of production o Marginal cost Change in total cost associated with an additional unit of out put +variable cost (fixed cost do not change) o Opportunity / Implicit cost The alternative use of the money that's invested in capital (interest earnings) / of a worker's time Profit =Total revenues - Total Costs Profit = TR - TC - Total revenue (TR = P x Q) & Total cost (TC = ATC x Q) - Accounting profit = TR - TC (explicit only) - Economic profit = TR - TC (explicit + implicit / opportunity cost) Profit = (P x Q) - (ATC x Q) = (P - ATC) xQ Price fixed -> focus: maximize profit & variable / marginal cost (actual level of profit) (total cost) 原創 Producer Surplus Producer Surplus = Total Revenue - Variable Cost Total Revenue ---- sum of Marginal Revenue = p x q Total Cost -- sum of Marginal Cost。

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如需图标或演算示意，可补充！如想长记忆为题库复习知识点，也可以告诉我。

Absolutely! Here’s a detailed English answer key for all parts of Tutorial 5 based on your provided files [41]Source: ECON8069 Tutorial 5.pdfECON8069 - Tutorial 5, Week 6 1. You are working as a consultant, consulting for a small bicycle manufactory. You are informed that average variable cost reaches a minimum of $120 per bike at 300 bikes produced; that average total cost reaches a minimum of $200 per bike at 400 bikes produced; and that at an output of 500 bikes, the marginal cost is $250. a) Draw a diagram illustrating the cost curves for the above bicycle firm. b) If the market price is $250 per bike, how many bikes would you advise the manufactory to produce? c) If the market price were instead $200 per bike, how many bikes would you advise the manufactory to produce? d) At what prices would you advise the firm to stop making bikes altogether? 2. In the 1980's, the American motorcycle manufacturer Harley-Davidson was los- ing millions of dollars each year, and was considering shutting down entirely. To avoid collapse, management substantially reduced its inventory of tools, compo- nents, and parts at its factory. Explain how this change could have (and did) enable Harley-Davidson to reduce production costs, and become more competitive with, particularly Japanese, competitors. 3. Explain, including the use of appropriate diagrams, the following situations. a) Sushi Smith in Kambri is producing and selling sushi, but is reporting zero economic profits. b) The university declares that one dollar from every bento box sold this year must go to PARSA. Sushi Smith starts to report negative profits, but remains in business. c) Workers at Sushi Smith agree to a small pay cut to help ensure the company stays open. Explain how a cut in wages might improve the company's position. 4. Searching for "plumbers" in the yellow pages in the ACT gives 207 results. Given there so many plumbers, assume the plumbing market in Canberra is perfectly competitive, with each firm having a u-shaped long run average total cost curve. a) Using an appropriate diagram, describe the long-run equilibrium in the plumb- ing market. b) Over the last 50 years or so, plumbing has changed from being predominantly pottery and concrete to predominantly PVC which is cheaper and easier to install. Would this change have caused firms to enter or leave the plumbing market? Explain the short- and long-run effects of this change on the market for plumbers., [14]Source: Notes & Review - ECON8069 Business Economics.pdf- Government should help guide consumer choice - Some decisions are very complex and individuals do not have enough information - If an individual behaviour benefits the larger society, the government should encourage that behaviour -> Positive Externality Xiaotong原创 5 Perfect Competition Key Ingredient - Firm and product are homogenous - Firm and consumer are "price-taker" - Firm profit-maximize & consumer surplus-maximize - Firm can freely entry and exist the market Profit · Accounting profit ---- revenue - explicit cost Economic profit - ---- revenue - explicit cost - implicit cost (expense) (opportunity cost) · The price-taking firm - Firm choose to sell as much as they want at a market price - Price = Marginal Revenue = Average Revenue - Firm level - demand is perfectly elastic Market level ----- may not · Short run o Total cost = Variable cost + Fixed cost o Per unit cost Average total cost q 1 ATC approaches AVC Average fixed cost q 1 AFC Į Average variable cost ---- AVC = VC / q MC < AVC ------ AVC Į ----- ATCĮ Marginal cost- MC = ATC/Aq = AVC/Aq MC> AVC ------ AVC 1 ----- ATCÎ Main variable cost = cost of Labour = w x L = VC Marginal Product of Labour: MPL = = 9 --- diminishing Marginal cost_ ----, [16]Source: Notes & Review - ECON8069 Business Economics.pdf· Long run All inputs are variable ----- high production > more capital (K) Search for minimum productions ------ efficient combination of capital and labour o Low quantity level ---- ATCSR is lower with low capital High quantity level ---- AT CSR is lower with a lot of capital ATCLR curve is the locus of the minimums of AT Csp curve -> all the minimum points of AT CSR curve O MCLR = Aq Aq MCLR < ATC ------ ATC \ MCLR > ATC ------ ATC 1 o Thinking on the Margin Maximize profit increase production until MR = MC o Break-even point = Shut-down point Price = ATCLR = AVCLR > choose capital so that minimum AT CSR = minimum AVCSR Economic profit = 0 (normal economic profit) accounting profit is positive 原料 o Returns to scale ---- production amounts Input > y(K, L) capital and labour WIE - Constant proportional increase in all input > same percentage increase in outcome - Increasing - increase in all input > more than proportional percentage increase in outcome - Decreasing --- -- increase in all input > less than proportional percentage increase in outcome o Economies to scale decreasing ATCLR curve (q 1 > ATCLR4) ----- production 1 > return î Diseconomies to scale ---- increasing ATCLR curve (q 1 > ATCLR1) ----- production 1 > return _ o Typical firm properly manage production cost - Economies of scale low output levels - Constant returns to scale moderate output levels - Diseconomies to scale high output levels Minimum efficient scale the smallest production level which minimums AT CLR (any more output will cause ATC increase) Economies of Scope is a related, but distinct ---- Where ATC declines as different goods are produced o Firm mergers (reasons) - Face economies to scale - reduce ATC (e. g. technology + new ideas) - Face economies to scope - -reduce ATC (e. g. software + computer) - They can more efficiently combine production technologies, [23]Source: ECON8069 Lecture 5.pdfFirm Exit (ECON8069) Lecture 5 36 / 39 Firm Exit (ECON8069) Lecture 5 36 / 39 Long-Run Equilibrium That is, when price equal minimum ATCLR. 1. ATCLR is minimised, so goods are produced at the lowest possible cost. 2. Capital is allocated efficiently; firms are neither over- nor under-capitalised. (ECON8069) Lecture 5 37 / 39 Comparative Statics - An Increase in Demand Suppose there is an increase in demand in the market. What happens in the short-run and long-run, at the firm-level and the market-level? (ECON8069) Lecture 5 38 / 39, [25]Source: ECON8069 Lecture 5.pdfLecture 5 40 / 39 Per Unit Cost Curves (ECON8069) Lecture 5 14 / 39 Kebabs (1000's) FC VC TC AFC AVC ATC MC - - - - (ECON8069) Lecture 5, [26]Source: ECON8069 Lecture 5.pdf(ECON8069) Lecture 5 5 / 39 Economic Profit and Accounting Profit · They pay $400,000 is operating expenses (guns, poisons, fake passports, etc. ) (ECON8069) Lecture 5 5 / 39 Economic Costs and Accounting Costs Accounting Profit A firm's Accounting Profit is their Revenue minus their Costs. Economic Profit A firm's Economic Profit is the difference between their current profit, and the profit from their next-best alternative. Equivalently, Economic Profit is Revenue minus explicit costs minus opportunity costs. (ECON8069) Lecture 5 6 / 39 The Price-Taking Firm (ECON8069) Lecture 5 7 / 39, [27]Source: ECON8069 Lecture 5.pdf(ECON8069) Lecture 5 26 / 39 Long Run Costs (ECON8069) Lecture 5 26 / 39 Long Run Costs (ECON8069) Lecture 5 26 / 39 Perfect Competition ECON8069 - Lecture 5 Australian National University (ECON8069) Lecture 5 1 / 39 Perfect Competition · Per-unit Costs Textbook: Section 6. 5, 6. 6. Chapter 7., [29]Source: ECON8069 Lecture 5.pdfThe Long Run (ECON8069) Lecture 5 27 / 39 Thinking on the Margin AVCLR = ATCLR means the minimum AVCLR is the minimum ATCLR. (ECON8069) Lecture 5 28 / 39 Returns to Scale Returns to Scale is a Long Run production concept regarding production amounts in the long run. (ECON8069) Lecture 5 29 / 39 Returns to Scale Returns to Scale is a Long Run production concept regarding production amounts in the long run. (ECON8069) Lecture 5 29 / 39 Returns to Scale, [30]Source: ECON8069 Lecture 5.pdf(ECON8069) Lecture 5 20 / 39 Short Run Profit - Summary (ECON8069) Lecture 5 21 / 39 Short Run Profit - Summary (ECON8069) Lecture 5 21 / 39 Short-Run Profit Cut-offs Zero Profit - The Break-Even Point $ - MC AVC - ATC q (ECON8069), [32]Source: ECON8069 Lecture 5.pdfLecture 5 22 / 39 Short-Run Profit Cut-offs Zero Profit - The Break-Even Point $ - MC AVC - ATC ∗ p q (ECON8069) Lecture 5 22 / 39 Short-Run Profit Cut-offs Zero Profit - The Break-Even Point $ - MC AVC, [33]Source: ECON8069 Lecture 5.pdfq (ECON8069) Lecture 5 22 / 39 Short-Run Profit The Shut-Down Condition $ - MC AVC - ATC q (ECON8069) Lecture 5 23 / 39 Short-Run Profit The Shut-Down Condition $ - MC, [34]Source: ECON8069 Lecture 5.pdfAVC - ATC AVC* = Px q (ECON8069) Lecture 5 23 / 39 Short-Run Profit The Shut-Down Condition $ - MC AVC - ATC AVC* = Px q* q (ECON8069) Lecture 5, [35]Source: ECON8069 Lecture 5.pdfMC AVC - ATC ATC * AVC* = Px q* q (ECON8069) Lecture 5 23 / 39 Short-Run Profit The Shut-Down Condition $ - MC AVC - ATC Profit = - FC, [36]Source: ECON8069 Lecture 5.pdf39 / 39 Comparative Statics - A Decrease in Demand Suppose there is an decrease in demand in the market. What happens in the short-run and long-run, at the firm-level and the market-level? decreasing market price in SR firm exit in LR decrease in supply (shift left) in LR negative SR profit (ECON8069) Lecture 5 39 / 39 Comparative Statics - A Decrease in Demand Suppose there is an decrease in demand in the market. What happens in the short-run and long-run, at the firm-level and the market-level? decreasing market price in SR firm exit in LR decrease in supply (shift left) in LR negative SR profit · Results: · Less firms in industry (ECON8069) Lecture 5 39 / 39 Other Interesting Comparative Statics (ECON8069), [38]Source: ECON8069 Lecture 5.pdfPer Unit Costs (ECON8069) Lecture 5 11 / 39 Per Unit Costs Why is ATC = AVC? (ECON8069) Lecture 5 11 / 39 More about Marginal Costs (ECON8069) Lecture 5 12 / 39 More about Marginal Costs MC = AVC ∆q = AVC /AL Aq/AL = MPL w (ECON8069) Lecture 5 12 / 39 More about Marginal Costs MC =:

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1. Bicycle Manufacturer Cost Analysis

(a) Cost Curves Diagram
You should illustrate four key curves:

• Average Variable Cost (AVC): U-shaped, minimum of $120 at q = 300.
• Average Total Cost (ATC): U-shaped, minimum of $200 at q = 400.
• Marginal Cost (MC): Crosses AVC at its minimum (q = 300) and ATC at its minimum (q = 400); at q = 500, MC = $250 (above ATC).
• Average Fixed Cost (AFC): Downward sloping.

Diagram:

• Label q (bikes) on the x-axis and cost ($) on the y-axis.
• Mark the minimum points for AVC at q = 300 ($120) and ATC at q = 400 ($200).
• The MC curve will cut through both minima and be rising at q = 500 where MC = $250.

(b) Market price $250:

• Advice: Produce 500 bikes.
• Reason: The profit-maximizing rule in perfect competition is to produce where $P = MC$. Since MC at 500 bikes is $250, and that is the market price, this is the profit-maximizing (or closest possible) output [14]Source: Notes & Review - ECON8069 Business Economics.pdf- Government should help guide consumer choice - Some decisions are very complex and individuals do not have enough information - If an individual behaviour benefits the larger society, the government should encourage that behaviour -> Positive Externality Xiaotong原创 5 Perfect Competition Key Ingredient - Firm and product are homogenous - Firm and consumer are "price-taker" - Firm profit-maximize & consumer surplus-maximize - Firm can freely entry and exist the market Profit · Accounting profit ---- revenue - explicit cost Economic profit - ---- revenue - explicit cost - implicit cost (expense) (opportunity cost) · The price-taking firm - Firm choose to sell as much as they want at a market price - Price = Marginal Revenue = Average Revenue - Firm level - demand is perfectly elastic Market level ----- may not · Short run o Total cost = Variable cost + Fixed cost o Per unit cost Average total cost q 1 ATC approaches AVC Average fixed cost q 1 AFC Į Average variable cost ---- AVC = VC / q MC < AVC ------ AVC Į ----- ATCĮ Marginal cost- MC = ATC/Aq = AVC/Aq MC> AVC ------ AVC 1 ----- ATCÎ Main variable cost = cost of Labour = w x L = VC Marginal Product of Labour: MPL = = 9 --- diminishing Marginal cost_ ----, [30]Source: ECON8069 Lecture 5.pdf(ECON8069) Lecture 5 20 / 39 Short Run Profit - Summary (ECON8069) Lecture 5 21 / 39 Short Run Profit - Summary (ECON8069) Lecture 5 21 / 39 Short-Run Profit Cut-offs Zero Profit - The Break-Even Point $ - MC AVC - ATC q (ECON8069), [32]Source: ECON8069 Lecture 5.pdfLecture 5 22 / 39 Short-Run Profit Cut-offs Zero Profit - The Break-Even Point $ - MC AVC - ATC ∗ p q (ECON8069) Lecture 5 22 / 39 Short-Run Profit Cut-offs Zero Profit - The Break-Even Point $ - MC AVC.

(c) Market price $200:

• Advice: Produce 400 bikes.
• Reason: At 400 bikes, ATC is minimized at $200, so price = minimum ATC ⇒ zero economic profit. Producing above 400, MC > P (so not optimal); below 400, not fully exploiting economies of scale. At 400 bikes, profit is zero but losses are minimized [14]Source: Notes & Review - ECON8069 Business Economics.pdf- Government should help guide consumer choice - Some decisions are very complex and individuals do not have enough information - If an individual behaviour benefits the larger society, the government should encourage that behaviour -> Positive Externality Xiaotong原创 5 Perfect Competition Key Ingredient - Firm and product are homogenous - Firm and consumer are "price-taker" - Firm profit-maximize & consumer surplus-maximize - Firm can freely entry and exist the market Profit · Accounting profit ---- revenue - explicit cost Economic profit - ---- revenue - explicit cost - implicit cost (expense) (opportunity cost) · The price-taking firm - Firm choose to sell as much as they want at a market price - Price = Marginal Revenue = Average Revenue - Firm level - demand is perfectly elastic Market level ----- may not · Short run o Total cost = Variable cost + Fixed cost o Per unit cost Average total cost q 1 ATC approaches AVC Average fixed cost q 1 AFC Į Average variable cost ---- AVC = VC / q MC < AVC ------ AVC Į ----- ATCĮ Marginal cost- MC = ATC/Aq = AVC/Aq MC> AVC ------ AVC 1 ----- ATCÎ Main variable cost = cost of Labour = w x L = VC Marginal Product of Labour: MPL = = 9 --- diminishing Marginal cost_ ----, [30]Source: ECON8069 Lecture 5.pdf(ECON8069) Lecture 5 20 / 39 Short Run Profit - Summary (ECON8069) Lecture 5 21 / 39 Short Run Profit - Summary (ECON8069) Lecture 5 21 / 39 Short-Run Profit Cut-offs Zero Profit - The Break-Even Point $ - MC AVC - ATC q (ECON8069), [32]Source: ECON8069 Lecture 5.pdfLecture 5 22 / 39 Short-Run Profit Cut-offs Zero Profit - The Break-Even Point $ - MC AVC - ATC ∗ p q (ECON8069) Lecture 5 22 / 39 Short-Run Profit Cut-offs Zero Profit - The Break-Even Point $ - MC AVC.

(d) Shut-down price:

• Advice: The firm should shut down if the price drops below minimum AVC.
• Minimum AVC: $120 at 300 bikes.
• Reason: Below this price, the firm can't cover its variable costs and will lose more by operating than by stopping (losses = fixed costs only) [14]Source: Notes & Review - ECON8069 Business Economics.pdf- Government should help guide consumer choice - Some decisions are very complex and individuals do not have enough information - If an individual behaviour benefits the larger society, the government should encourage that behaviour -> Positive Externality Xiaotong原创 5 Perfect Competition Key Ingredient - Firm and product are homogenous - Firm and consumer are "price-taker" - Firm profit-maximize & consumer surplus-maximize - Firm can freely entry and exist the market Profit · Accounting profit ---- revenue - explicit cost Economic profit - ---- revenue - explicit cost - implicit cost (expense) (opportunity cost) · The price-taking firm - Firm choose to sell as much as they want at a market price - Price = Marginal Revenue = Average Revenue - Firm level - demand is perfectly elastic Market level ----- may not · Short run o Total cost = Variable cost + Fixed cost o Per unit cost Average total cost q 1 ATC approaches AVC Average fixed cost q 1 AFC Į Average variable cost ---- AVC = VC / q MC < AVC ------ AVC Į ----- ATCĮ Marginal cost- MC = ATC/Aq = AVC/Aq MC> AVC ------ AVC 1 ----- ATCÎ Main variable cost = cost of Labour = w x L = VC Marginal Product of Labour: MPL = = 9 --- diminishing Marginal cost_ ----, [30]Source: ECON8069 Lecture 5.pdf(ECON8069) Lecture 5 20 / 39 Short Run Profit - Summary (ECON8069) Lecture 5 21 / 39 Short Run Profit - Summary (ECON8069) Lecture 5 21 / 39 Short-Run Profit Cut-offs Zero Profit - The Break-Even Point $ - MC AVC - ATC q (ECON8069), [33]Source: ECON8069 Lecture 5.pdfq (ECON8069) Lecture 5 22 / 39 Short-Run Profit The Shut-Down Condition $ - MC AVC - ATC q (ECON8069) Lecture 5 23 / 39 Short-Run Profit The Shut-Down Condition $ - MC, [34]Source: ECON8069 Lecture 5.pdfAVC - ATC AVC* = Px q (ECON8069) Lecture 5 23 / 39 Short-Run Profit The Shut-Down Condition $ - MC AVC - ATC AVC* = Px q* q (ECON8069) Lecture 5, [35]Source: ECON8069 Lecture 5.pdfMC AVC - ATC ATC * AVC* = Px q* q (ECON8069) Lecture 5 23 / 39 Short-Run Profit The Shut-Down Condition $ - MC AVC - ATC Profit = - FC, [37]Source: ECON8069 Lecture 5.pdf23 / 39 Short-Run Profit The Shut-Down Condition $ - MC AVC - ATC ATC, * AVC* = Px q* q (ECON8069) Lecture 5 23 / 39 Short-Run Profit The Shut-Down Condition $ -.

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2. Harley-Davidson Inventory Reduction

By cutting inventory (tools, parts, components), Harley-Davidson reduced:

• Storage costs (less warehousing, less capital tied up)
• Obsolescence/waste (faster turnover lowers risk of excess/obsolete stock)
• Promoted just-in-time efficiency: Less inventory exposes weak points in production, smooths workflow.
• Increased flexibility and cost competitiveness: Lower costs make the firm more competitive, especially against Japanese firms who were already efficient [8]Source: Notes & Review - ECON8069 Business Economics.pdfEquil. Price ? Equil. Quantity V Firms & Incentives · Price-takers (set by market) ---- choose production levels to maximize profits · Production - Variable factor Input can be changed in a certain period of time & changes if the level of out put (labor) - Fixed factor Input cannot be changed in the short-run, regardless of how much output is produced (capital) · Long run All of the firm's inputs can be changed · Short run o Total cost = Variable cost + Fixed cost - Variable cost --- associated with the variable factor of production - Fixed cost associated with the fixed factor of production o Marginal cost Change in total cost associated with an additional unit of out put +variable cost (fixed cost do not change) o Opportunity / Implicit cost The alternative use of the money that's invested in capital (interest earnings) / of a worker's time Profit =Total revenues - Total Costs Profit = TR - TC - Total revenue (TR = P x Q) & Total cost (TC = ATC x Q) - Accounting profit = TR - TC (explicit only) - Economic profit = TR - TC (explicit + implicit / opportunity cost) Profit = (P x Q) - (ATC x Q) = (P - ATC) xQ Price fixed -> focus: maximize profit & variable / marginal cost (actual level of profit) (total cost) 原創 Producer Surplus Producer Surplus = Total Revenue - Variable Cost Total Revenue ---- sum of Marginal Revenue = p x q Total Cost -- sum of Marginal Cost, [9]Source: Notes & Review - ECON8069 Business Economics.pdf- Marginal benefit curve - how much additional utility the consumer receives from each item - Demand curve - how much of the good the consumer chooses to buy for each given price - Marginal benefit curve = Demand curve ---- consumers are trying to maximise consumer surplus. · Over consumption p p p € Maximized Total Benefit Total Cost Consumer Surplus po po MB MB MB q q q laot Oiwant创 po Budget Constraint - 2 goods case · Consumer behaviour o A bundle of goods: a collection of some amount of good A, with some amount of good B. o Optimal consumption bundles - What bundles they can afford fixed income --- spend all the money - Their preference between bundles --- maximize consumer surplus --- equalising marginal utility · Budget constraint Purchasing 2 different goods with different prices by limited (fixed) income.

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3. Sushi Smith Profit Scenarios

(a) Zero economic profit:

• Explanation: Firm’s total revenue covers all explicit and implicit (opportunity) costs. In perfect competition, long-run equilibrium means $P = ATC$, so economic profit is zero; the owner is just as well off as the next-best alternative [14]Source: Notes & Review - ECON8069 Business Economics.pdf- Government should help guide consumer choice - Some decisions are very complex and individuals do not have enough information - If an individual behaviour benefits the larger society, the government should encourage that behaviour -> Positive Externality Xiaotong原创 5 Perfect Competition Key Ingredient - Firm and product are homogenous - Firm and consumer are "price-taker" - Firm profit-maximize & consumer surplus-maximize - Firm can freely entry and exist the market Profit · Accounting profit ---- revenue - explicit cost Economic profit - ---- revenue - explicit cost - implicit cost (expense) (opportunity cost) · The price-taking firm - Firm choose to sell as much as they want at a market price - Price = Marginal Revenue = Average Revenue - Firm level - demand is perfectly elastic Market level ----- may not · Short run o Total cost = Variable cost + Fixed cost o Per unit cost Average total cost q 1 ATC approaches AVC Average fixed cost q 1 AFC Į Average variable cost ---- AVC = VC / q MC < AVC ------ AVC Į ----- ATCĮ Marginal cost- MC = ATC/Aq = AVC/Aq MC> AVC ------ AVC 1 ----- ATCÎ Main variable cost = cost of Labour = w x L = VC Marginal Product of Labour: MPL = = 9 --- diminishing Marginal cost_ ----, [16]Source: Notes & Review - ECON8069 Business Economics.pdf· Long run All inputs are variable ----- high production > more capital (K) Search for minimum productions ------ efficient combination of capital and labour o Low quantity level ---- ATCSR is lower with low capital High quantity level ---- AT CSR is lower with a lot of capital ATCLR curve is the locus of the minimums of AT Csp curve -> all the minimum points of AT CSR curve O MCLR = Aq Aq MCLR < ATC ------ ATC \ MCLR > ATC ------ ATC 1 o Thinking on the Margin Maximize profit increase production until MR = MC o Break-even point = Shut-down point Price = ATCLR = AVCLR > choose capital so that minimum AT CSR = minimum AVCSR Economic profit = 0 (normal economic profit) accounting profit is positive 原料 o Returns to scale ---- production amounts Input > y(K, L) capital and labour WIE - Constant proportional increase in all input > same percentage increase in outcome - Increasing - increase in all input > more than proportional percentage increase in outcome - Decreasing --- -- increase in all input > less than proportional percentage increase in outcome o Economies to scale decreasing ATCLR curve (q 1 > ATCLR4) ----- production 1 > return î Diseconomies to scale ---- increasing ATCLR curve (q 1 > ATCLR1) ----- production 1 > return _ o Typical firm properly manage production cost - Economies of scale low output levels - Constant returns to scale moderate output levels - Diseconomies to scale high output levels Minimum efficient scale the smallest production level which minimums AT CLR (any more output will cause ATC increase) Economies of Scope is a related, but distinct ---- Where ATC declines as different goods are produced o Firm mergers (reasons) - Face economies to scale - reduce ATC (e. g. technology + new ideas) - Face economies to scope - -reduce ATC (e. g. software + computer) - They can more efficiently combine production technologies, [26]Source: ECON8069 Lecture 5.pdf(ECON8069) Lecture 5 5 / 39 Economic Profit and Accounting Profit · They pay $400,000 is operating expenses (guns, poisons, fake passports, etc. ) (ECON8069) Lecture 5 5 / 39 Economic Costs and Accounting Costs Accounting Profit A firm's Accounting Profit is their Revenue minus their Costs. Economic Profit A firm's Economic Profit is the difference between their current profit, and the profit from their next-best alternative. Equivalently, Economic Profit is Revenue minus explicit costs minus opportunity costs. (ECON8069) Lecture 5 6 / 39 The Price-Taking Firm (ECON8069) Lecture 5 7 / 39.

(b) Negative profit but remains open:

• Explanation: If a bento tax causes economic loss but $P > AVC$, it is optimal to stay open in the short run because variable costs are covered and fixed costs are only partially lost. Closing would result in losing the entire fixed cost [14]Source: Notes & Review - ECON8069 Business Economics.pdf- Government should help guide consumer choice - Some decisions are very complex and individuals do not have enough information - If an individual behaviour benefits the larger society, the government should encourage that behaviour -> Positive Externality Xiaotong原创 5 Perfect Competition Key Ingredient - Firm and product are homogenous - Firm and consumer are "price-taker" - Firm profit-maximize & consumer surplus-maximize - Firm can freely entry and exist the market Profit · Accounting profit ---- revenue - explicit cost Economic profit - ---- revenue - explicit cost - implicit cost (expense) (opportunity cost) · The price-taking firm - Firm choose to sell as much as they want at a market price - Price = Marginal Revenue = Average Revenue - Firm level - demand is perfectly elastic Market level ----- may not · Short run o Total cost = Variable cost + Fixed cost o Per unit cost Average total cost q 1 ATC approaches AVC Average fixed cost q 1 AFC Į Average variable cost ---- AVC = VC / q MC < AVC ------ AVC Į ----- ATCĮ Marginal cost- MC = ATC/Aq = AVC/Aq MC> AVC ------ AVC 1 ----- ATCÎ Main variable cost = cost of Labour = w x L = VC Marginal Product of Labour: MPL = = 9 --- diminishing Marginal cost_ ----, [32]Source: ECON8069 Lecture 5.pdfLecture 5 22 / 39 Short-Run Profit Cut-offs Zero Profit - The Break-Even Point $ - MC AVC - ATC ∗ p q (ECON8069) Lecture 5 22 / 39 Short-Run Profit Cut-offs Zero Profit - The Break-Even Point $ - MC AVC, [33]Source: ECON8069 Lecture 5.pdfq (ECON8069) Lecture 5 22 / 39 Short-Run Profit The Shut-Down Condition $ - MC AVC - ATC q (ECON8069) Lecture 5 23 / 39 Short-Run Profit The Shut-Down Condition $ - MC, [35]Source: ECON8069 Lecture 5.pdfMC AVC - ATC ATC * AVC* = Px q* q (ECON8069) Lecture 5 23 / 39 Short-Run Profit The Shut-Down Condition $ - MC AVC - ATC Profit = - FC.

(c) Pay cut by workers:

• Explanation: Lower wages reduce AVC and ATC. This can shift the firm from a loss to zero or positive profit (if $P$ rises above ATC), or at least make losses smaller, improving chances of survival [14]Source: Notes & Review - ECON8069 Business Economics.pdf- Government should help guide consumer choice - Some decisions are very complex and individuals do not have enough information - If an individual behaviour benefits the larger society, the government should encourage that behaviour -> Positive Externality Xiaotong原创 5 Perfect Competition Key Ingredient - Firm and product are homogenous - Firm and consumer are "price-taker" - Firm profit-maximize & consumer surplus-maximize - Firm can freely entry and exist the market Profit · Accounting profit ---- revenue - explicit cost Economic profit - ---- revenue - explicit cost - implicit cost (expense) (opportunity cost) · The price-taking firm - Firm choose to sell as much as they want at a market price - Price = Marginal Revenue = Average Revenue - Firm level - demand is perfectly elastic Market level ----- may not · Short run o Total cost = Variable cost + Fixed cost o Per unit cost Average total cost q 1 ATC approaches AVC Average fixed cost q 1 AFC Į Average variable cost ---- AVC = VC / q MC < AVC ------ AVC Į ----- ATCĮ Marginal cost- MC = ATC/Aq = AVC/Aq MC> AVC ------ AVC 1 ----- ATCÎ Main variable cost = cost of Labour = w x L = VC Marginal Product of Labour: MPL = = 9 --- diminishing Marginal cost_ ----, [27]Source: ECON8069 Lecture 5.pdf(ECON8069) Lecture 5 26 / 39 Long Run Costs (ECON8069) Lecture 5 26 / 39 Long Run Costs (ECON8069) Lecture 5 26 / 39 Perfect Competition ECON8069 - Lecture 5 Australian National University (ECON8069) Lecture 5 1 / 39 Perfect Competition · Per-unit Costs Textbook: Section 6. 5, 6. 6. Chapter 7..

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4. Canberra Plumbing Market (Perfect Competition Long Run)

(a) Diagram and Equilibrium explanation:

• Long run equilibrium: Draw a market and a firm panel:
  • Market: $P$ equals the minimum point of LRATC (Long Run Average Total Cost).
  • Firm: $P = min(LRATC)$, so each firm earns zero economic profit (normal profit); all firms operate at minimum efficient scale [16]Source: Notes & Review - ECON8069 Business Economics.pdf· Long run All inputs are variable ----- high production > more capital (K) Search for minimum productions ------ efficient combination of capital and labour o Low quantity level ---- ATCSR is lower with low capital High quantity level ---- AT CSR is lower with a lot of capital ATCLR curve is the locus of the minimums of AT Csp curve -> all the minimum points of AT CSR curve O MCLR = Aq Aq MCLR < ATC ------ ATC \ MCLR > ATC ------ ATC 1 o Thinking on the Margin Maximize profit increase production until MR = MC o Break-even point = Shut-down point Price = ATCLR = AVCLR > choose capital so that minimum AT CSR = minimum AVCSR Economic profit = 0 (normal economic profit) accounting profit is positive 原料 o Returns to scale ---- production amounts Input > y(K, L) capital and labour WIE - Constant proportional increase in all input > same percentage increase in outcome - Increasing - increase in all input > more than proportional percentage increase in outcome - Decreasing --- -- increase in all input > less than proportional percentage increase in outcome o Economies to scale decreasing ATCLR curve (q 1 > ATCLR4) ----- production 1 > return î Diseconomies to scale ---- increasing ATCLR curve (q 1 > ATCLR1) ----- production 1 > return _ o Typical firm properly manage production cost - Economies of scale low output levels - Constant returns to scale moderate output levels - Diseconomies to scale high output levels Minimum efficient scale the smallest production level which minimums AT CLR (any more output will cause ATC increase) Economies of Scope is a related, but distinct ---- Where ATC declines as different goods are produced o Firm mergers (reasons) - Face economies to scale - reduce ATC (e. g. technology + new ideas) - Face economies to scope - -reduce ATC (e. g. software + computer) - They can more efficiently combine production technologies, [23]Source: ECON8069 Lecture 5.pdfFirm Exit (ECON8069) Lecture 5 36 / 39 Firm Exit (ECON8069) Lecture 5 36 / 39 Long-Run Equilibrium That is, when price equal minimum ATCLR. 1. ATCLR is minimised, so goods are produced at the lowest possible cost. 2. Capital is allocated efficiently; firms are neither over- nor under-capitalised. (ECON8069) Lecture 5 37 / 39 Comparative Statics - An Increase in Demand Suppose there is an increase in demand in the market. What happens in the short-run and long-run, at the firm-level and the market-level? (ECON8069) Lecture 5 38 / 39, [27]Source: ECON8069 Lecture 5.pdf(ECON8069) Lecture 5 26 / 39 Long Run Costs (ECON8069) Lecture 5 26 / 39 Long Run Costs (ECON8069) Lecture 5 26 / 39 Perfect Competition ECON8069 - Lecture 5 Australian National University (ECON8069) Lecture 5 1 / 39 Perfect Competition · Per-unit Costs Textbook: Section 6. 5, 6. 6. Chapter 7., [29]Source: ECON8069 Lecture 5.pdfThe Long Run (ECON8069) Lecture 5 27 / 39 Thinking on the Margin AVCLR = ATCLR means the minimum AVCLR is the minimum ATCLR. (ECON8069) Lecture 5 28 / 39 Returns to Scale Returns to Scale is a Long Run production concept regarding production amounts in the long run. (ECON8069) Lecture 5 29 / 39 Returns to Scale Returns to Scale is a Long Run production concept regarding production amounts in the long run. (ECON8069) Lecture 5 29 / 39 Returns to Scale.
• Dynamic: If $P > min(LRATC)$, firms enter; if $P < min(LRATC)$, firms exit until only normal profit remains.

(b) Technological change (shift to PVC):

• Short-run: Lower costs (downward shift of cost curves); incumbents make positive economic profits.
• Long-run: Entry of new firms increases supply, reducing price back to the new, lower minimum LRATC. Long-run equilibrium features more plumbers in the market, each still earning zero economic profit but at a lower price; consumers benefit from lower prices [16]Source: Notes & Review - ECON8069 Business Economics.pdf· Long run All inputs are variable ----- high production > more capital (K) Search for minimum productions ------ efficient combination of capital and labour o Low quantity level ---- ATCSR is lower with low capital High quantity level ---- AT CSR is lower with a lot of capital ATCLR curve is the locus of the minimums of AT Csp curve -> all the minimum points of AT CSR curve O MCLR = Aq Aq MCLR < ATC ------ ATC \ MCLR > ATC ------ ATC 1 o Thinking on the Margin Maximize profit increase production until MR = MC o Break-even point = Shut-down point Price = ATCLR = AVCLR > choose capital so that minimum AT CSR = minimum AVCSR Economic profit = 0 (normal economic profit) accounting profit is positive 原料 o Returns to scale ---- production amounts Input > y(K, L) capital and labour WIE - Constant proportional increase in all input > same percentage increase in outcome - Increasing - increase in all input > more than proportional percentage increase in outcome - Decreasing --- -- increase in all input > less than proportional percentage increase in outcome o Economies to scale decreasing ATCLR curve (q 1 > ATCLR4) ----- production 1 > return î Diseconomies to scale ---- increasing ATCLR curve (q 1 > ATCLR1) ----- production 1 > return _ o Typical firm properly manage production cost - Economies of scale low output levels - Constant returns to scale moderate output levels - Diseconomies to scale high output levels Minimum efficient scale the smallest production level which minimums AT CLR (any more output will cause ATC increase) Economies of Scope is a related, but distinct ---- Where ATC declines as different goods are produced o Firm mergers (reasons) - Face economies to scale - reduce ATC (e. g. technology + new ideas) - Face economies to scope - -reduce ATC (e. g. software + computer) - They can more efficiently combine production technologies, [29]Source: ECON8069 Lecture 5.pdfThe Long Run (ECON8069) Lecture 5 27 / 39 Thinking on the Margin AVCLR = ATCLR means the minimum AVCLR is the minimum ATCLR. (ECON8069) Lecture 5 28 / 39 Returns to Scale Returns to Scale is a Long Run production concept regarding production amounts in the long run. (ECON8069) Lecture 5 29 / 39 Returns to Scale Returns to Scale is a Long Run production concept regarding production amounts in the long run. (ECON8069) Lecture 5 29 / 39 Returns to Scale, [40]Source: ECON8069 Lecture 5.pdfReturns to Scale is a Long Run production concept regarding production amounts in the long run. (ECON8069) Lecture 5 29 / 39 Economies of Scale Returns to Scale is a Long Run cost concept regarding average costs in the long run. Associated with increasing returns from increasing production. Associated with decreasing returns from increasing production. (ECON8069) Lecture 5 30 / 39 Typical Firm in the Long Run (ECON8069) Lecture 5 31 / 39 Firm Mergers Firms merge due to a range of reasons: (ECON8069) Lecture 5 32 / 39.

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Summary of Quiz 5 (Week 9) - ECON8069 Sem1 2023

This document summarizes the results and questions from Quiz 5 of ECON8069 Sem1 2023. The quiz was completed on Friday, 5 May 2023, within 24 minutes and 52 seconds, and the student achieved a perfect score of 3.00 out of 3.00 (100%).

Question 1: Inflation and Real Wages

The question addresses the impact of a high inflation rate in Australia (7.0% CPI over the last 12 months) on a worker's material well-being.

• Part i) Worker Materially Better Off:

  • Explanation: A worker receiving a 7% pay rise would generally be slightly materially better off compared to 12 months ago.
  • Reasoning: This is because their nominal wage increase (7%) matches the rate of inflation (7%). Therefore, their real wage (the purchasing power of their income) would remain the same or slightly increase if the pay rise was precisely 7% and the CPI accurately reflects their consumption basket. The slight improvement comes from the fact that their nominal income has increased, allowing them to purchase the same basket of goods and services as before, with any minor deviation in the CPI calculation or consumption patterns potentially leading to a small gain.

• Part ii) Circumstance Where Worker is Not Materially Better Off:

  • Circumstance: A worker might not be materially better off if the composition of their consumption basket has changed significantly, and the prices of the goods and services they consume have risen by more than the average CPI rate of 7.0%.
  • Explanation: If the worker spends a larger proportion of their income on goods and services that have experienced price increases exceeding 7.0% (e.g., specific food items, energy, or housing costs that are not fully captured by the general CPI), their 7% pay rise would not be sufficient to maintain their previous standard of living. In this scenario, their real wage would effectively decrease, meaning they can afford less than they could a year ago, despite the nominal pay increase.

  For example, if a worker's consumption heavily relies on petrol and electricity, and these specific items have seen price hikes of 15% while other goods have risen less, their overall purchasing power would diminish even with a 7% wage increase.

Here are the answers and explanations for Quiz 5 (Week 9) from ECON8069, based strictly on the provided material:

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Question 1

Australia is currently experiencing a higher-than-usual level of inflation, with the CPI inflation rate at 7.0% over the last 12 months.

i) Why would a worker with a 7% pay rise generally be slightly better off now compared to 12 months ago?

Answer & Explanation:

• If a worker receives a 7% pay rise when the inflation rate is also 7%, their nominal wage has increased by the same percentage as the general price level.
• In real terms (i.e., adjusting for inflation), their purchasing power stays approximately the same.
• However, the phrase “slightly better off” is used because, in practice, pay rises may just slightly exceed measured inflation, or the CPI may not perfectly reflect the worker’s personal consumption basket.
• As a result, such a worker might be able to purchase the same amount of goods and services as before, or marginally more if their specific costs of living increased by less than 7%.

Key Concept:
[ \text{Real Wage Change} \approx \text{Nominal Wage Change} - \text{Inflation Rate} ]
If both are 7%, $\text{Real Wage Change} \approx 0$ — but small differences, measurement issues, or rounding can make the worker slightly better off [1]Source: q5.pdfWATTLE Dashboard / My courses / ECON8069 Sem1 2023 / Quiz 5 (Week 9) Started on Friday, 5 May 2023, 2:05 PM State Finished Completed on Friday, 5 May 2023, 2:30 PM Time taken 24 mins 52 secs Grade 3. 00 out of 3. 00 (100%) Question 1 Complete Mark 3. 00 out of 3. 00 Australia is currently experiencing a higher-than-usual level of inflation, with the CPI inflation rate at 7. 0% over the last 12 months. i) Carefully explain why a worker who has received a 7% pay rise would, in general, be slightly materially better off now compared to 12 months ago. ii) Describe a circumstance in which a worker (with a 7% pay rise) might not be materially better off now than a year ago, and explain why this is the case. 微信图片 20230505142920. jpg Comment:.

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ii) Describe a circumstance in which a worker (with a 7% pay rise) might not be materially better off now than a year ago, and explain why.

Answer & Explanation:

• A worker may not be better off if the costs of the goods and services they most frequently purchase have increased by more than 7%.
• The CPI measures average inflation across a broad set of goods and services, but individuals might face higher price increases in their personal consumption basket (for example, if rent, petrol, or food prices for their area have gone up more than the CPI).
• In this situation, even with a 7% wage increase, the worker’s purchasing power relative to their needs could have declined. This means they’d be able to afford less than before, despite the nominal pay rise.

Key Point:
[ \text{If Price Increases for Worker’s Consumption Basket} > 7%, \text{ then Real Wage for Worker } < 0 ]
So, the worker is not materially better off [1]Source: q5.pdfWATTLE Dashboard / My courses / ECON8069 Sem1 2023 / Quiz 5 (Week 9) Started on Friday, 5 May 2023, 2:05 PM State Finished Completed on Friday, 5 May 2023, 2:30 PM Time taken 24 mins 52 secs Grade 3. 00 out of 3. 00 (100%) Question 1 Complete Mark 3. 00 out of 3. 00 Australia is currently experiencing a higher-than-usual level of inflation, with the CPI inflation rate at 7. 0% over the last 12 months. i) Carefully explain why a worker who has received a 7% pay rise would, in general, be slightly materially better off now compared to 12 months ago. ii) Describe a circumstance in which a worker (with a 7% pay rise) might not be materially better off now than a year ago, and explain why this is the case. 微信图片 20230505142920. jpg Comment:.

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Summary Table

| Scenario | Wage Rise | CPI/Personal Inflation | Real Wage Effect | |--------------------|----------|-----------------------|---------------------------------| | Typical situation | 7% | 7% | About the same, possibly slight gain | | Own spending > CPI | 7% | 9% (for individual) | Worse off; real wage has fallen |

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Citations: [1]Source: q5.pdfWATTLE Dashboard / My courses / ECON8069 Sem1 2023 / Quiz 5 (Week 9) Started on Friday, 5 May 2023, 2:05 PM State Finished Completed on Friday, 5 May 2023, 2:30 PM Time taken 24 mins 52 secs Grade 3. 00 out of 3. 00 (100%) Question 1 Complete Mark 3. 00 out of 3. 00 Australia is currently experiencing a higher-than-usual level of inflation, with the CPI inflation rate at 7. 0% over the last 12 months. i) Carefully explain why a worker who has received a 7% pay rise would, in general, be slightly materially better off now compared to 12 months ago. ii) Describe a circumstance in which a worker (with a 7% pay rise) might not be materially better off now than a year ago, and explain why this is the case. 微信图片 20230505142920. jpg Comment:
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