section10_1 - Department of Economics University of...

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Department of Economics University of California, Berkeley ECON 100A Spring 2010 - Section 10 GSI: Antonio Rosato Cost of Production In the short run it was only the price of the variable input that mattered to determine costs. Since long run is by the definition when all inputs are variable, the prices of both inputs will matter. As before, the price of labor is w (wages), and the price of capital is given by r (to see what are the components of r read the textbook). What is the decision problem for the firm in the theory of the firm? Choose inputs to minimize cost. A firm doesn’t necessarily want to maximize output, because there isn’t necessarily demand out there for any amount it will produce. We assume that the firm tries to minimize the costs of production given some predetermined output. The total cost of production is given by the firms expenditure on labor and capital: C = wL + rK The long run decision problem is to minimize costs of production subject to a given production level. Mathematically this is min
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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.

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section10_1 - Department of Economics University of...

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