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Lecture 5_C00 - Cost Minimization Example 1 s q = L 1/2 K...

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Economics 100B: Lecture 5
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Chapter 7 Outline square6 Previous Lecture: boxshadowdwn Described short-run costs. boxshadowdwn Short-run average and marginal costs. square6 Today’s Lecture: boxshadowdwn Optimize choice of labor and capital based on relative costs. square6 Administrative Note: boxshadowdwn I assume that you read the book, including material not covered in class.
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Long-Run Costs square6 r is rental rate of capital boxshadowdwn Even if firm owns capital, can think about implicit rental rate square6 Slope of isocost curve = - w / r
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Cost Minimization
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Cost Minimization Slope of Isoquant = Slope of isocost line
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Unformatted text preview: Cost Minimization: Example 1 s q = L 1/2 K 1/2 , w = 4, r = 2 Cost Minimization: Example 2 s q = L + K, w = 4, r = 2 Cost Minimization: Example 3 s q = min{L,K}, w = 4, r = 2 Substitutability Firm’s Problem Min L,K wL + rK subject to q = f(L,K) Langrangian Approach Firm’s Problem Min L,K wL + rK subject to q = f(L,K) Langrangian Approach Firm’s Problem Min L,K wL + rK subject to q = f(L,K) Alternative Approach Min K wL(q,K) + rK FOC:...
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