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

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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)
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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Complements Production Function Q = A min( α L, β K) RTS? Output with double inputs = A min(
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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.

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

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