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Unformatted text preview: MP1= w1/p 19.7 Comparative Statics As the price for factor 1 increases, the demand for factor 1 must decrease, factor demand curves must slope downward If you change the price of factor 2, this has no effect on the optimal choice of factor 1, or the supply of output, only on the profits. –short tun 19.8 Profit Maximization in the Long Run (x1, x2) max p f( x1, x2) –w1x1 – w2x2 pMP1(x1*,x2*)=w1 pMP2(x1*,x2*)=w2 19.9 Inverse Factor Demand Curves pMP1(x1, x2*) =w1 19.10 Profit Maximization and Returns to Scale The only reasonable long run level of profits for a competitive firm that has constant returns to scale at all levels of output is a zero level of profits 19.11 Revealed Profitablility p y- w1 x1- w2 x2>=0 ∆ ∆ ∆ ∆ ∆ ∆ 19.12 Cost Minimization...
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This note was uploaded on 10/06/2010 for the course FNCE 100 taught by Professor Jaffe during the Spring '10 term at UNC Asheville.
- Spring '10