Lecture 16

# Lecture 16 - Economics 101A(Lecture 16 Stefano DellaVigna...

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Economics 101A (Lecture 16) Stefano DellaVigna October 22, 2009

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Outline 1. Cost Curves and Supply Function II 2. One-step Pro f t Maximization 3. Second-Order Conditions 4. Introduction to Market Equilibrium 5. Aggregation 6. Market Equilibrium in the Short-Run
1C o s t C u r v e s I I Assume only 1 input (expenditure minimization is trivial) Case 1. Production function. y = L α Cost function? (cost of input is w ): c ( w, y )= wL ( wy 1 Marginal cost? ∂c ( ) ∂y = 1 α (1 α ) Average cost c ( ) /y ? c ( ) y = 1 y = (1 α )

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Case 1a. α> 1 . Plot production function, total cost, average and marginal. Supply function? Case 1b. α =1 . Plot production function, total cost, average and marginal. Supply function? Case 1c. α< 1 . Plot production function, total cost, average and marginal. Supply function?
Case 2. Non-convex technology. Plot production function, total cost, average and marginal. Supply function? Case 3. Technology with setup cost. Plot produc- tion function, total cost, average and marginal. Sup- ply function?

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1.1 Supply Function Supply function: y = y ( w, r, p ) What happens to y as p increases? Is the supply function upward sloping? Remember f.o.c: p c 0 y ( w, r, y )=0 Implicit function: ∂y ∂p = 1 c 00 y,y ( w, r, y ) > 0 as long as s.o.c. is satis f ed.
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Lecture 16 - Economics 101A(Lecture 16 Stefano DellaVigna...

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