Ch08_spr09_pam2000-1

Ch08_spr09_pam2000-1 - PAM 2000 Intermediate Microeconomics...

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PAM 2000 Intermediate Microeconomics A. Sinan Ünür Chapter 8 Chapter 8 Cost Curves
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Chapter 8 PAM 2000 – A. Sinan Ünür Long Run Cost Curves Long run cost curves show how total cost of production varies with output , keeping all input prices constant, and choosing all inputs to minimize cost. To find the long run cost curve given a production function and input prices, we find the demand functions for inputs K and L as functions of Q, w and r, and substitute them in: TC(Q) = wL(Q, w, r) + rK(Q, w, r)
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Chapter 8 PAM 2000 – A. Sinan Ünür Long Run Total Cost Long run total cost of zero output is always zero (because there are no fixed inputs). Long run total cost increases if the price of one or more of the inputs increases (assuming no technological change). If the price of one input increases relative to the price of other inputs, firms use less of that input.
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Chapter 8 PAM 2000 – A. Sinan Ünür Long Run Average and Marginal Cost Long Run Average Cost (LRAC, AC): The total cost of producing Q units per each unit produced: LRAC(Q) = TC(Q)/Q Long Run Marginal Cost (LRMC, MC): The incremental cost of producing one more unit of output: Q Q TC Q Q TC Q TC Q LRMC - + = = ) ( ) ( ) (
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Chapter 8 PAM 2000 – A. Sinan Ünür
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Ch08_spr09_pam2000-1 - PAM 2000 Intermediate Microeconomics...

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