DIS 8 Handout

DIS 8 Handout - Aniko Oery University of California...

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Aniko Oery University of California, Berkeley Section 8: The production function, MRTS and the elasticity of substitution Econ 100A, MICRO-ECONOMIC ANALYSIS, Spring 2010 So far, we have analyzed the demand side of the market and we could finally derive the market demand function. Now, we will try to understand better the supply side of the market. We will use similar tools as for the analysis of consumer choice, but there are major differences in the way we will model the decision making of firms. First, we need to understand how the firm can find the optimal input mix that minimizes its costs given a certain quantity of output that it wants to produce. This is basically what we will do before the first midterm. Today, we introduce the production function, the marginal rate of technical substitution and the elasticity of substitution. 1 The production function The production function is a function that discribes how much output can be produced at most given a certain input mix. If there is only one input, then it is a univariate function
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This note was uploaded on 01/19/2011 for the course ECON 100A taught by Professor Woroch during the Spring '08 term at Berkeley.

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DIS 8 Handout - Aniko Oery University of California...

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