ECON300-WELLS-EXAM #2 REVIEW

I. REVIEW OF COST AND PROFITS

A. Accounting vs. Economic Costs

Accounting (explicit) cost-The cost of acquiring things not already owned

Economic costs-Accounting costs Implicit costs

Implicit costs-Opportunity cost of something already owned-Average ROE, ROI, ROR (profit). For Wells: Typically about 15%

Short Run vs. Long Run

Short Run-A time period too short to change the firm's capacity. Some costs are fixed, some are variable.

TC FC VC ? ATC AFC AVC

AFC TC/Q

AVC VC/Q

Long Run-A time period long enough to change capacity. Long enough to enter an industry/market.

Marginal Cost-The extra costs of producing an extra unit

MC ?TC/?Q

B. Short Run Cost Curves

Short Run Cost Schedule:

Quantity (Q)

Fixed Cost (FC)

Variable Cost (VC)

Total Cost (TC)...