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Unformatted text preview: Department of Economics University of California, Berkeley ECON 100A Spring 2010- Section 11 GSI: Antonio Rosato Cost of Production Cost with varying levels of output We can repeat the cost-minimization problem for increasing levels of output, and obtain for each level the point of tangency between the isoquant and an isocost. Connecting these points gives the expansion path . This curve gives the cost-minimizing combina- tions of the two inputs for different levels of output. Exercise : Draw the exapansion path curve for the following cases: fixed proportion and perfect substitutes production function. Is there a difference between the expansion path in the short run and in the long run? Long run and short run cost curves This analysis is going to be only graphical. First thing to remember is how short run AC and MC (SRAC and SRMC) curves look like. They are the result of holding the quantity of at least one input fixed, and having increasing and then diminishing marginal returns to the variable factor of production. The firm can do better, i.e. produce at areturns to the variable factor of production....
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This note was uploaded on 03/18/2010 for the course ECON 100A taught by Professor Woroch during the Spring '08 term at University of California, Berkeley.
- Spring '08