ajaz_204_2009_lecture_11

# Ajaz_204_2009_lectur - University of Toronto Department of Economics ECO 204 2009 2010 Sayed Ajaz Hussain Lecture 11 Ajaz Hussain Department of

This preview shows pages 1–13. Sign up to view the full content.

University of Toronto Department of Economics ECO 204 2009 2010 Sayed Ajaz Hussain Lecture 11 1 Ajaz Hussain. Department of Economics. University of Toronto (St. George)

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Today ± Cobb Douglas CMP ² Cost and AC function ± The U shaped AC curve ± Complements CMP ² Cost and AC function ² “Inflexibility” ± Choice of technology ± Technological progress ± Learning by doing ± Minimum Efficient Scale ± Economies of Scope ± User cost of capital Ajaz Hussain. Department of Economics. University of Toronto (St. George) 2
Last Time: CMP Ajaz Hussain. Department of Economics. University of Toronto (St. George) 3 Set up and solve CMP Demands for Inputs Substitute demands in C = P L L + P K K Cost function: C(q) Production Function, Input Prices, Target Output

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Cobb Douglas Long Run CMP Choose L, K to min C = P L L + P K K s.t. A L α K β = q Min L = P L L + P K K ‐ λ [A L α K β q] L = (q/A) 1/( α + β ) [( α / β )(P K /P L )] β /( α + β ) K = (q/A) 1/( α + β ) [( β / α )(P L /P K )] α /( α + β ) λ = α ‐α /( α + β ) β ‐β /( α + β ) P L α /( α + β ) P K β /( α + β ) q (1 ‐ α ‐ β )/( α + β ) C(q) = (q/A) 1/( α + β ) (P L α P K β ) 1/( α + β ) [( α / β ) β /( α + β ) + ( β / α ) α /( α + β ) ] See Long Run CMP Model Ajaz Hussain. Department of Economics. University of Toronto (St. George) 4
Cobb Douglas Long Run CMP RTS = 1 Ajaz Hussain. Department of Economics. University of Toronto (St. George) 5 Parameters α = ½ β = ½ P L = \$5 P K = \$5 A = 1

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Cobb Douglas Long Run CMP RTS = 1 Ajaz Hussain. Department of Economics. University of Toronto (St. George) 6 Parameters α = ½ β = ½ P L = \$5 P K = \$5 A = 1
Cobb Douglas Long Run CMP: RTS < 1 Ajaz Hussain. Department of Economics. University of Toronto (St. George) 7 Parameters α = ¼ β = ¼ P L = \$5 P K = \$5 A = 1

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Cobb Douglas Long Run CMP: RTS < 1 Ajaz Hussain. Department of Economics. University of Toronto (St. George) 8 Parameters α = ¼ β = ¼ P L = \$5 P K = \$5 A = 1
Cobb Douglas Long Run CMP: RTS > 1 Ajaz Hussain. Department of Economics. University of Toronto (St. George) 9 Parameters α = ½ β = ¾ P L = \$5 P K = \$5

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Cobb Douglas Long Run CMP: RTS > 1 Ajaz Hussain. Department of Economics. University of Toronto (St. George) 10 Parameters α = ½ β = ¾ P L = \$5 P K = \$5 A = 1
Cobb Douglas: “U” AC Curve? Ajaz Hussain. Department of Economics. University of Toronto (St. George) 11 (Long Run) AC q RTS > 1 RTS < 1 RTS = 1 P L K C(q) = q 1/( α + β ) (1/A) 1/( α + β ) (P L α P K β ) 1/( α + β ) [( α / β ) β /( α + β ) + ( β / α ) α /( α + β ) ] P L K

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Complements Production Function Q = A min( α L, β K) RTS? Output with double inputs = A min(
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 05/02/2011 for the course ECO 204 taught by Professor Hussein during the Fall '08 term at University of Toronto- Toronto.

### Page1 / 46

Ajaz_204_2009_lectur - University of Toronto Department of Economics ECO 204 2009 2010 Sayed Ajaz Hussain Lecture 11 Ajaz Hussain Department of

This preview shows document pages 1 - 13. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online