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 productionShort run total costpL, pK= prices of labor and capitalL*(Q), K*(Q) = optimal quantities of inputsSTC(Q) = pLL*(Q) + pKK*(Q)
QLTPLK=K0Short Run Total CostK = fixed inputIn the short run, K = K0.K*(Q) = K0.STC(Q) = pLL*(Q) + pKK0Q = F(K0, L)To find L*(Q), solve TPLforL as a function of Q, given K0. TPL
has intentionally blurred sections.
Sign up to view the full version.