Lecture%2013%20March%207

Lecture%2013%20March%207 - Todays Agenda Short run cost...

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Today’s Agenda Short run cost functions 3 total cost functions: STC, TVC, TFC 3 average cost functions: SATC, AVC, AFC Marginal cost function: SMC

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Short Run Cost Functions Goal: find the lowest-cost way to produce Q given production function prices of inputs firm’s previously chosen levels of fixed factors of production Short run total cost p L , p K = prices of labor and capital L*(Q), K*(Q) = optimal quantities of inputs STC(Q) = p L L*(Q) + p K K*(Q)
Q L TP L K=K 0 Short Run Total Cost K = fixed input In the short run, K = K 0 . K*(Q) = K 0 . STC(Q) = p L L*(Q) + p K K 0 Q = F(K 0 , L) To find L*(Q), solve TP L for L as a function of Q, given K 0 . TP L

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Invert TP L to get L*(Q)