301lec11 - Lecture 11 Econ 301 Professor S. Severinov...

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Lecture 11 Econ 301 Professor S. Severinov Economics of the Firm Costs of Production, Supply
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Main Goal: Understand profit-maximizing decisions of a competitive firm. Production Function ( MP-marginal product, MRTS, returns to scale isoquants ) Costs. - Cost-minimization problem: How can a firm produce a given output at minimal cost? Rule: MRTS= ratio of input price Economics of the Firm: overview
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Supply Competitive firm is small compared to the market, and so its actions do not affect the market price. Supply decision is the decision how much output to produce at a given market price. Rule for optimal supply: Marginal Cost=Price Economics of the Firm:overview
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Choosing Inputs We have addressed how to minimize cost for a given level of output Consider the isoquant for the quantity we wish to produce This isoquant must be tangent to the isocost curve: Isocost is the combination of K and L that cost the same amount (similar to the budget line)
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Producing a Given Output at Minimum Cost Labor per year Capital per year Isocost C 2 shows quantity Q 1 can be produced with combination K2,L2 or K3,L3. However, both of these
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This note was uploaded on 01/28/2011 for the course ECON 301 taught by Professor Chapple during the Spring '08 term at The University of British Columbia.

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301lec11 - Lecture 11 Econ 301 Professor S. Severinov...

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