Lecture 5_C00

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 s Previous Lecture: b Described short-run costs. b Short-run average and marginal costs. s Today’s Lecture: b Optimize choice of labor and capital based on relative costs. s Administrative Note: b I assume that you read the book, including material not covered in class.
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Long-Run Costs s r is rental rate of capital b Even if firm owns capital, can think about implicit rental rate s 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 But what do we need for an interior solution?
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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 Firms Problem Min L,K wL + rK subject to q = f(L,K) Langrangian Approach Firms Problem Min L,K wL + rK subject to q = f(L,K) Langrangian Approach Firms 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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Lecture 5_C00 - Cost Minimization: Example 1 s q = L 1/2 K...

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