Econ 3.10.08 - Econ 3.10.08 K= Capitol L=Labor Isoquant...

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Econ 3.10.08 K= Capitol L=Labor Isoquant line is the line where all points on it where the firm can make the amount of the line. Point B is good because it is on the isoquant line and is the cheapest. If w/r <Marginal Rate Technical Substitution then the company will just use L If w/r=Marginal Rate Technical Substitution then they can use both If w/r >Marginal Rate Technical Substitution then they just use K
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closest to origin that makes K and L equal. The shape of the Long-Run average cost curves Fixed cost and an increasing, then diminishing average product of labor determined the U shaped short run average cost curve. What determines the shape of the long-run cost curve? Economies and Diseconomies of Scale Economies of and Diseconomies scale-characteristics of a firm’s technology that lead to long run average cost -increases specialization of capital and labor as more output is produced. -Changes in the type of capital used at higher levels of output -Increasing returns to sale. Diseconomies of scale-characteristics of a firm’s technology that leads to increasing long run cost average -Difficulty in managing to a large enterprise -Decreasing returns to scale. Minimum efficient scale-The level(s) of output at which long-run average cost are at their lowest. The relationship between long and short run average cost curves The long run average cost curve is the envelope of the short-run average cost curves. Whats this mean?
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This note was uploaded on 03/29/2008 for the course ECON 101 taught by Professor Hansen during the Spring '07 term at University of Wisconsin.

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Econ 3.10.08 - Econ 3.10.08 K= Capitol L=Labor Isoquant...

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