Unformatted text preview: (a) increasing returns to scale implies decreasing AC (b) constant returns implies constant AC (c) decreasing returns implies increasing AC 3. Long-run and short-run costs (a) long run: all inputs variable • c s ( y, x 2 ) = w 1 x s 1 ( w 1 ,w 2 , x 2 ,y ) + w 2 x 2 (b) short run: some inputs Fxed • c ( y ) = w 1 x 1 ( w 1 ,w 2 ,y ) + w 2 x 2 ( w 1 ,w 2 ,y ) 4. ±ixed and quasi-Fxed costs (a) Fxed: must be paid, whatever the output level • there are no Fxed costs in the long-run ! (b) quasi-Fxed: only paid when output is positive (heating, lighting, etc.) (c) sunk costs : costs that cannot be recovered 1...
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- Summer '10
- Economics, Economics of production, factor demand functions, min w1, x2 s.t.