Unformatted text preview: Cost Minimization 124 Cost Minimization A. Cost minimization problem 1. minimize cost to produce some given level of output: x1 ;x2 min w1 x1 + w2 x2
s.t. f (x1 ; x2 ) = y 2. geometric solution: slope of isoquant equals slope of isocost curve. Figure 19.1.
x2 Optimal choice x2 * Isocost lines slope = w1 /w2 Isoquant f (x1 , x2 ) = y x1 * x Figure 19.1 Cost Minimization 125 3. equation is: w1 =w2 = MP1 =MP2 4. optimal choices of factors are the conditional factor demand functions 5. optimal cost is the cost function 6. examples a)...
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- Spring '08
- Economics, Economics of production