Notes 10.03.29 - The Relationship Between MP AP MC and AVC...

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The Relationship Between MP, AP, MC, and AVC
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Costs In The Long Run Isocost line: a set of input bundles each of which costs the same amount.
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Firm’s Problem To minimize total costs given that it will produce Q 0 = F (K, L) units of output.
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Firm’s Dual Problem To maximize the total output given the expenditure level of C 0 units of output. Max F9k.l) S.t. wL+rK=Co Min wL+rK St F(l,K)=Qo
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Example: Finding the optimal input combination to minimize cost Example: Consider a firm with the production function F(K, L) =K 0.5 L 0.5 that wishes to produce 40 units of output. Given that the hourly wage w is $12 and the hourly rental rate is $3, Which labor-capital combination should the firm use to minimize its costs ? W= $12 r= $3 Q= 4- Min 12L+3K St K^.5*L^.5=40 Mrts=w/r MPL/MPx=w/p
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Example: Finding the optimal input combination to maximize output Example: Consider a firm with the production function F(K, L) =K 0.5 L 0.5 . The hourly wage w is $12 and the hourly rental rate is $3.
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This note was uploaded on 04/29/2010 for the course PSYCH 85 211 taught by Professor Theissen during the Spring '10 term at Carnegie Mellon.

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Notes 10.03.29 - The Relationship Between MP AP MC and AVC...

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