Section9 - Aniko Oery University of California Berkeley...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Aniko Oery University of California, Berkeley Section 9: Cost minimization and returns to scale Econ 100A, MICRO-ECONOMIC ANALYSIS, Spring 2010 As a first step of solving the profit-maximization problem of the firm, the firm needs to find the cheapest input combination to produce a specific output goal. Therefore, it solves the cost- minimization problem min L,K C ( L, K ) subject to f ( L, K ) = Q for a output goal Q , where f ( L, K ) is the production function we introduced last time. The solution to this problem will depend on the value of Q and it will give us the cost function C ( Q ). In this discussion section we will review how to solve the cost minimization problem. We will also briefly talk about retruns to scale. 1 The cost minimization problem Note first that the cost that the firm faces is given by C ( L, K ) = wL + rK where w is the price for input L and r is the price for input K . The level curves of this cost function are called iso-cost lines and describe input combinations that result in the same cost.and describe input combinations that result in the same cost....
View Full Document

{[ snackBarMessage ]}

Page1 / 2

Section9 - Aniko Oery University of California Berkeley...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online