This preview shows page 1. Sign up to view the full content.
Unformatted text preview: a. TC = wL + rK + mM b. K is fixed input c. MP L /MP M = w/m A change in the relative price of inputs changes the slope of the isocost line. a. All else equal, an increase in w must decrease the cost minimizing quantity of labor and increase the cost minimizing quantity of capital with diminishing MRTS L,K . b. All else equal, an increase in r must decrease the cost minimizing quantity of capital and increase the cost minimizing quantity of labor. Expansion path: traced by cost minimizing input combinations as Q varies L, K are normal inputs if cost minimizing quantities of L and K rise as output rises Input is inferior if cost minimizing quantity of input decreases as firm produces more output Expansion path: stick everything in terms of K, L, w, r...
View Full Document
- Spring '09