2/7/20091Topic 5: Production (2)USC MarshallCost minimizationCost minimization•Having described the production technology, we can now consider the costs of production•The cost of producing Q units is simply the amount of capital and labor needed times their price:CUSC Marshall– We call this the isocostline, analogous to budget constraint– Of course, a firm is not tied to a given cost level. But it still wants to produce any quantity at the lowest cost possiblerKwLCost minimization•Sometimes undertaking any production requires a fixed capital outlay, even in the long-run. We call this outlay an avoidable fixed cost, FC. It simply shifts the total cost curve upwards by a fixed amount.Aid blfidt it id bthUSC Marshall– An avoidable fixed cost is any cost incurred by the firm that is independent of the scale of production but has to be paid to undertake any production.• Minimum size of a factory, phone line, computer,…CrKwLF
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