Cost Theory and Profit Maximization

TOPIC:            Cost Theory and Profit Maximization

DATE:            TO BE ANNOUNCED

TEXT REFERENCES:    Mankiw, Chapter 13   

1.    Implicit vs. explicit cost   

2.    Normal vs. economic profit vs. economic loss

3.    The short run

    A.    Definition   

    B.    The product curves (total physical product and marginal physical product/ increasing and diminishing returns)

    C.    The cost curves (marginal, total, variable etc.)

4.    The long run

    A.    Definition

    B.    The long run average cost curve (including economies vs. diseconomies of scale)

5.    Profit maximization/loss minimization rule MC=MR and why true

6.    Application of cost theory: the decision to commute by automobile or mass transit