204_summer_2009_lecture_6

204_summer_2009_lect - University of Toronto Department of Economics ECO 204 Summer 2009 Sayed Ajaz Hussain Lecture 6 1 Ajaz Hussain Department of

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Unformatted text preview: University of Toronto Department of Economics ECO 204 Summer 2009 Sayed Ajaz Hussain Lecture 6 1 Ajaz Hussain. Department of Economics Today ¡ “Black Box” Firm ¡ Modeling producer technology ¢ Production function ¢ Long vs. Short Run ¢ Representing technology ¢ Interesting production functions: ¢ Cobb ‐ Douglas production function ¢ Complements production function ¢ Linear production function ¢ Quasi ‐ Linear production function ¢ CES production function 2 Ajaz Hussain. Department of Economics Simple “Black Box Model” of a Firm ¡ In the black box model firm transforms inputs into output ¢ “Inputs” don’t have to be capital and labor ¡ Assume: ¢ Firm purchases inputs at uniform prices as a price taker ¢ Produces single output ¡ The black box focuses on inputs being transformed into output: deliberately ignore “intra ‐ firm” issues Ajaz Hussain 3 Firm Output Input(s) Consumer vs. Producer Theory CONSUMER ¡ Preferences ¡ Given (but can be affected) ¡ Utility function ¡ MRS ¡ Utility Maximization ¡ P 1 , P 2 , Y given ¡ Max Utility ¡ s.t. Expenditure ≤ Income ¡ Demand for Q 1 , Q 2 ¡ Optimized utility PRODUCER ¡ Technology ¡ Choice ¡ Production function ¡ MRTS ¡ Cost Minimization ¡ P K , P L , q given ¡ Min Cost ¡ s.t. Output produced ≥...
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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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204_summer_2009_lect - University of Toronto Department of Economics ECO 204 Summer 2009 Sayed Ajaz Hussain Lecture 6 1 Ajaz Hussain Department of

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