{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Lecture09

# Lecture09 - Lecture 09 Cost Curves Perlo Chapter 7 Vladimir...

This preview shows pages 1–7. Sign up to view the full content.

Lecture 09: Cost Curves Perlo/ Chapter 7 Vladimir Petkov VUW 29 March 2010 Vladimir Petkov (VUW) Lecture 09: Cost Curves 29 March 2010 1 ± 24

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

View Full Document
Short Run Costs A ( F ) is the expense that cannot be adjusted in the short A variable cost ( VC ) is the expense that changes with the amount of output produced. Note: in the long run, all costs are variable. total cost ( C cost: C = VC + F . Vladimir Petkov (VUW) Lecture 09: Cost Curves 29 March 2010 2 / 24
Short Run Costs: Cobb-Douglas Example f ( K , L ) = K α L 1 α . K = ¯ K . Therefore, the labor needed to produce ¯ q ¯ q = ¯ K α L 1 α . Solving for L yields L = ¯ q ¯ K α ± 1 1 α . Thus, the short-run total cost is C = wL + r ¯ K = w ¯ q ¯ K α ± 1 1 α + r ¯ K . r ¯ K and the variable cost is w ² ¯ q ¯ K α ³ 1 1 α . Vladimir Petkov (VUW) Lecture 09: Cost Curves 29 March 2010 3 / 24

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

View Full Document
The Short Run Expansion Path The short-run decision about factor proportions is not done by the tangency optimization routine. uniquely determined by the target output level. Input prices are irrelevant for the short-run choice of L . L K K Vladimir Petkov (VUW) Lecture 09: Cost Curves 29 March 2010 4 / 24
Obtaining The Short Run Cost Curve We can drop the isocost line and just map the cost of hiring labor. If MP L is diminishing, the graph is as follows: Vladimir Petkov (VUW) Lecture 09: Cost Curves 29 March 2010 5 / 24

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

View Full Document
Cost Measures Marginal Cost MC ) is the amount by which MC = dC ( q ) dq . Remember that
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 24

Lecture09 - Lecture 09 Cost Curves Perlo Chapter 7 Vladimir...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online