Econ501aL11

# Econ501aL11 - Short Run Cost Functions In the short run one...

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Unformatted text preview: Short Run Cost Functions In the short run, one or more inputs are ¯xed, so the ¯rm chooses the variable inputs to minimize the cost of producing a given amount of output. With several variable inputs, the procedure is the same as long run cost minimization. For example, if we have f ( K;L;Land ) and Land is ¯xed, we solve the cost minimization problem to ¯nd the demand for capital and labor, conditional on input prices and x, K ¤ ( w;r;x ) and L ¤ ( w;r;x ). Then we evaluate the cost of K, L, and Land to get the total cost function. With one variable input, things are quite a bit easier, since there is no substitutability between inputs. Suppose that we have a ¯xed amount of capital, K . Then the production function can be interpreted as a function of L only. For example, if we have f ( K;L ) = K ® L ¯ , then the short run production function is f ( L ; K ) = K ® L ¯ : To ¯nd the conditional labor demand, we invert the short run production function by solving x = f ( L ; K )...
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Econ501aL11 - Short Run Cost Functions In the short run one...

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