Lecture12 - Costs Conditional Demand x Conditional Factor...

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Costs
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Conditional Demand Conditional Factor Demand The choice of inputs that will yield minimal costs for the firm will in general depend on the input prices (w, r) and the level of output the firm wants to produce, i.e., L=L(w,r, y) K=K(w, r, y) (y represents a given level of output)
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Short Run Costs Total Costs = VC + FC VC is variable costs and FC is fixed costs. We usually think of Labour as being the variable factor and Capital as being the fixed factor .
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Short Run Costs Average costs ATC = VC/Y +FC/Y ATC = AVC + AFC Marginal costs MC= δ TC/ δ Y = δ VC/ δ Y = MVC (MFC = 0)
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Short Run Costs Y AFC AVC AC MC Recall the relationship between MC and AC
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Short Run Costs: Example Trying to get TC = C = F(Y) Trying to get AC = TC/Y = C/Y = F(Y) Trying to get MC = F(Y)
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Short Run Costs: Example 2 1 2 1 10 L K Y = Capital (K) is fixed in the short run. Let 1 w and , 10 = = = r K
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Short Run Costs: Example 2 1 2 1 10 L K Y = Square the production function equation in order to simplify L K Y 100 2 = Rearrange to find K Y L 100 2 =
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This note was uploaded on 09/21/2011 for the course ECON 1230 taught by Professor Qwe during the Spring '11 term at UC Irvine.

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Lecture12 - Costs Conditional Demand x Conditional Factor...

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