costs.201a - Econ 100A: Production: Cost, Part I (Chapters...

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Unformatted text preview: Econ 100A: Production: Cost, Part I (Chapters 20, 21) Thomas G. Koch Fall 2008 Thomas G. Koch Production: Cost (20, 21 A) 1(30) Clickers Turn on your clicker Hit a button Thomas G. Koch Production: Cost (20, 21 A) 2(30) Exam 2 is one week away! Need pencils, scientific calculators, pink Scantrons Similar format to first exam Thomas G. Koch Production: Cost (20, 21 A) 3(30) Firms so far Given technology, a firm maximizes its profit Limited to perfect competition Thomas G. Koch Production: Cost (20, 21 A) 4(30) Firms so far Given technology, a firm maximizes its profit Limited to perfect competition Similar problem, in two parts. 1 Minimize costs given any level of output 2 Given cost functions, maximize output Thomas G. Koch Production: Cost (20, 21 A) 4(30) Cost Minimization problem, Long Run min x 1 , x 2 w 1 x 1 + w 2 x 2 such that f ( x 1 , x 2 ) = y Thomas G. Koch Production: Cost (20, 21 A) 5(30) Cost Minimization problem, Long Run min x 1 , x 2 w 1 x 1 + w 2 x 2 such that f ( x 1 , x 2 ) = y 1 Solve for x * 1 ( w 1 , w 2 , y ) and x * 2 ( w 1 , w 2 , y ) Thomas G. Koch Production: Cost (20, 21 A) 5(30) Cost Minimization problem, Long Run min x 1 , x 2 w 1 x 1 + w 2 x 2 such that f ( x 1 , x 2 ) = y 1 Solve for x * 1 ( w 1 , w 2 , y ) and x * 2 ( w 1 , w 2 , y ) 2 Then use C = w 1 x * 1 + w 2 x * 2 to get . . . 3 c ( w 1 , w 2 , y ), the cost function Thomas G. Koch Production: Cost (20, 21 A) 5(30) Cost Minimization Thomas G. Koch Production: Cost (20, 21 A) 6(30) Isocost lines C = w 1 x 1 + w 2 x 2 Thomas G. Koch Production: Cost (20, 21 A) 7(30) Isocost lines C = w 1 x 1 + w 2 x 2 Rearrange to get . . . x 2 = C w 2- w 1 w 2 x 1 Thomas G. Koch Production: Cost (20, 21 A) 7(30) Cost Minimization Thomas G. Koch Production: Cost (20, 21 A) 8(30) Cost Minimization If an interior solution . . . Thomas G. Koch Production: Cost (20, 21 A) 9(30) Cost Minimization If an interior solution . . ....
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This note was uploaded on 09/12/2011 for the course ECON 100A/ 100B taught by Professor Staff during the Fall '08 term at UCSB.

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costs.201a - Econ 100A: Production: Cost, Part I (Chapters...

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