ch08 - Chapter 8 Costs Curves 1 Chapter Eight Overview 1...

Info iconThis preview shows pages 1–25. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Costs Curves Chapter 8
Background image of page 1

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

View Full DocumentRight Arrow Icon
2 Chapter Eight Overview 1. Introduction 1. Long Run Cost Functions Shifts Long run average and marginal cost functions Economies of scale Deadweight loss – "A Perfectly Competitive Market Without Intervention Maximizes Total Surplus" 1. Short Run Cost Functions 1. The Relationship Between Long Run and Short Run Cost Functions Chapter Eight
Background image of page 2
3 Chapter Eight Long Run Cost Functions Definition: The long run total cost function relates minimized total cost to output, Q, and to the factor prices (w and r). TC(Q,w,r) = wL*(Q,w,r) + rK*(Q,w,r) Where: L* and K* are the long run input demand functions
Background image of page 3

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

View Full DocumentRight Arrow Icon
4 Chapter Eight Long Run Cost Functions As Quantity of output increases from 1 million to 2 million, with input prices(w, r) constant, cost minimizing input combination moves from TC 1 to TC 2 which gives the TC(Q) curve.
Background image of page 4
5 Chapter Eight What is the long run total cost function for production function Q = 50L 1/2 K 1/2 ? L*(Q,w,r) = (Q/50)(r/w) 1/2 K*(Q,w,r) = (Q/50)(w/r) 1/2 TC(Q,w,r) = w[(Q/50)(r/w) 1/2 ]+r[(Q/50)(w/r) 1/2 ] = (Q/50)(wr) 1/2 + (Q/50)(wr) 1/2 = (Q/25)(wr) 1/2 What is the graph of the total cost curve when w = 25 and r = 100? TC(Q) = 2Q Long Run Cost Functions
Background image of page 5

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

View Full DocumentRight Arrow Icon
6 Q (units per year) TC ($ per year) TC(Q) = 2Q $4M. Chapter Eight A Total Cost Curve
Background image of page 6
7 1 M. $2M. Chapter Eight TC ($ per year) Q (units per year) TC(Q) = 2Q A Total Cost Curve
Background image of page 7

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

View Full DocumentRight Arrow Icon
8 1 M. 2 M. $2M. $4M. Chapter Eight A Total Cost Curve TC ($ per year) Q (units per year) TC(Q) = 2Q
Background image of page 8
9 Chapter Eight Long Run Total Cost Curve Definition: The long run total cost curve shows minimized total cost as output varies, holding input prices constant. Graphically, what does the total cost curve look like if Q varies and w and r are fixed?
Background image of page 9

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

View Full DocumentRight Arrow Icon
10 Chapter Eight Long Run Total Cost Curve
Background image of page 10
11 Chapter Eight Long Run Total Cost Curve
Background image of page 11

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

View Full DocumentRight Arrow Icon
12 Chapter Eight Long Run Total Cost Curve
Background image of page 12
13 Q (units per year) L (labor services per year) K TC ($/yr) 0 0 L 0 L 1 K 0 K 1 Q 0 Q 1 TC = TC 1 TC = TC 0 Chapter Eight Long Run Total Cost Curve
Background image of page 13

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

View Full DocumentRight Arrow Icon
14 Q (units per year) L (labor services per year) K TC ($/yr) 0 0 LR Total Cost Curve Q 0 TC 0 =wL 0 +rK 0 L 0 L 1 K 0 K 1 Q 0 Q 1 TC = TC 1 TC = TC 0 Chapter Eight Long Run Total Cost Curve
Background image of page 14
15 Q (units per year) L (labor services per year) K TC ($/yr) 0 0 LR Total Cost Curve Q 0 Q 1 TC 0 =wL 0 +rK 0 L 0 L 1 K 0 K 1 Q 0 Q 1 TC = TC 1 TC = TC 0 TC 1 =wL 1 +rK 1 Chapter Eight Long Run Total Cost Curve
Background image of page 15

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

View Full DocumentRight Arrow Icon
16 Chapter Eight Long Run Total Cost Curve Graphically, how does the total cost curve shift if wages rise but the price of capital remains fixed?
Background image of page 16
17 L K 0 TC 0 /r Chapter Eight A Change in Input Prices
Background image of page 17

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

View Full DocumentRight Arrow Icon
18 L 0 -w 0 /r TC 0 /r TC 1 /r -w 1 /r Chapter Eight K A Change in Input Prices
Background image of page 18
19 L 0 A B -w 0 /r TC 0 /r -w 1 /r Chapter Eight TC 1 /r K A Change in Input Prices
Background image of page 19

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

View Full DocumentRight Arrow Icon
20 L Q 0 0 A -w 0 /r TC 0 /r -w 1 /r Chapter Eight B TC 1 /r K A Change in Input Prices
Background image of page 20
21 Q (units/yr) TC ($/yr) TC(Q) post Chapter Eight A Shift in the Total Cost Curve
Background image of page 21

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

View Full DocumentRight Arrow Icon
22 Q (units/yr) TC(Q) ante TC(Q) post Chapter Eight TC ($/yr) A Shift in the Total Cost Curve
Background image of page 22
23 Q (units/yr) TC(Q) ante TC(Q) post TC 0 Chapter Eight TC ($/yr) A Shift in the Total Cost Curve
Background image of page 23

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

View Full DocumentRight Arrow Icon
24 Q (units/yr) TC(Q) ante TC(Q) post Q 0 TC 1 TC 0 Chapter Eight TC ($/yr) A Shift in the Total Cost Curve
Background image of page 24
Image of page 25
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/15/2011 for the course ECON 300 taught by Professor Zh during the Spring '11 term at SUNY Albany.

Page1 / 78

ch08 - Chapter 8 Costs Curves 1 Chapter Eight Overview 1...

This preview shows document pages 1 - 25. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online