Econ11Fall2007NotesForLecture_12Oct17

# Econ11Fall2007NotesForLecture_12Oct17 - Lecture XII Cost...

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Problem Set #3 Due Monday Review Total, Average, Marginal Product, I. What is the Relation between Product and Cost? II . Using the “ Golden Rule for Cost Minimization” III. Short Run Total, Average and Marginal Cost Curves I. What is the Relation between Product and Cost? A. Product is determined by the production function Q* = F(K*, L*, E*, M*); use K*,L*,E*,M* get to get Q* B. Total cost of Q* is simply the total cost of the K*, L*,E*, and M* inputs or C(Q*) = wL*+rK*+p E E*+p M M* Where w=wage, r=rental price of K, p’s are price of E & M C. Assume that the marginal products of labor and capital are MP L and MP K respectively, then… D. w/MP L = MC L = marginal cost of producing output using labor and r/MP K = MC K = marginal cost of producing output using capital E. Necessary condition to minimize cost of producing given output is that the marginal cost of producing output must be equal for all inputs used or the Golden Rule for Cost Minimization

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Econ11Fall2007NotesForLecture_12Oct17 - Lecture XII Cost...

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