204_summer_2009_lecture_11

# 204_summer_2009_lecture_11 - University of Toronto...

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Unformatted text preview: University of Toronto Department of Economics ECO 204 Summer 2009 Sayed Ajaz Hussain Lecture 11 1 Ajaz Hussain. Department of Economics. UToronto In the past .. ¡ Derived cost functions axiomatically ¢ Assumed we know production technology ¢ Did CMP and obtained cost function ¡ In the Prestige Telephone Company case: ¢ Contribution analysis required estimate of AVC ¢ To compute AVC we needed cost function ¢ Cost function was estimated by: ¢ Plotting dollars cost vs. hours (output) ¢ Guessing cost function was linear ¢ Estimating intercept and slope of linear cost function Ajaz Hussain. Department of Economics. UToronto 2 Today ¡ That cost functions can be estimated from data, suggests that we can also estimate: ¢ Demand functions ¢ Production functions ¢ Cost functions from real data ¡ Demand estimation ¢ Linear vs. log ‐ linear models ¡ Production function estimation ¢ CES production function ¡ Cost function estimation ¢ Trans log production function Ajaz Hussain. Department of Economics. UToronto 3 204: Axiomatic Approach Ajaz Hussain. Department of Economics. UToronto 4 Consumers Producers Preferences UMP Demands for Goods 1 & 2 Technology Long Run CMP Demands for L & K Cost Function Example: 204 Axiomatic Approach Ajaz Hussain. Department of Economics. UToronto 5 Cobb ‐ Douglas Preferences UMP Q 1 = ( α / α + β )Y/P 1 Q 2 = ( β / α + β )Y/P 2 Cobb ‐ Douglas Technology Long Run CMP L = q 1/( α + β ) [( α / β )(P K /P L )] β /( α + β...
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204_summer_2009_lecture_11 - University of Toronto...

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