321_16 - 1 w 2 Group Problem 2 Output = y = f(x 1 x 2...

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ECON 321 Spring 2011: Lecture 16 Chapter 20: Cost Minimization
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Definitions for Chapter 20: Cost Minimization Isocost line: Set of inputs all costing the same c = w 1 x 1 + w 2 x 2 Just like a budget line but a choice not a constraint. Cost Function: Result of cost minimization (choosing cheapest point on an isoquant) Function of factor prices and output level Average Cost Function The cost per unit of output (Cost divided by output) Marginal Cost Function: The additional cost of each unit (the slope, rate of change or derivative of the cost function w.r.t output)
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Group Problem 1 Output = y = f(x 1 , x 2 ) = x 1 + 2x 2 Plot an isoquant for y=20 Plot an isocost curve when w 1 = w 2 = 1 that intersects the 20 isoquant at the cheapest combination. Repeat the last part with w 1 = 1, w 2 = 3 What is the total cost of producing 20 units? Derive the cost function as a function of y, w
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Unformatted text preview: 1 , w 2 . Group Problem 2 Output = y = f(x 1 , x 2 ) = [min{x 1 , 2x 2 }] ½ • Plot an isoquant for y = 4 and one for y = 5. • Plot an isocost curve when w 1 = w 2 = 1 that intersects the 4 isoquant at the cheapest combination and one for the 5 isoquant that does the same. • Label the cost minimizing input bundles to produce 4 and 5 units of output. Draw a line connecting the origin with the two cost minimization solutions. What is the slope of this line? • Derive the cost function as a function of y, w 1 , w 2 . Group Problem 3 • If the quantity of input x 2 is fixed in the short run and we have production function a)How much x 1 is needed to produce 100 units of output? b)If w 1 = w 2 = 1, how much does this cost? c)Write down a formula for the cost as a function of output, y . 2 1 2 1 2 ) , ( x x x x f y + = =...
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This note was uploaded on 06/16/2011 for the course ECON 321 taught by Professor Murray during the Spring '11 term at South Carolina.

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321_16 - 1 w 2 Group Problem 2 Output = y = f(x 1 x 2...

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