Lecture+14+March+9

# Lecture+14+March+9 - Todays Agenda Warning notices...

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Today’s Agenda Warning notices Short-run cost functions in review Cost in the long run Supply in the short run E b o n y J e r i g a : P l s m .

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Diminishing returns to labor Rising SMC Q L TP L
Diminishing returns to labor Rising SMC Q L TP L

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Diminishing returns to labor Rising SMC Q L TP L
Diminishing returns to labor Rising SMC Q \$/Q SATC(Q) AVC(Q) SMC(Q) Q L TP L

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A brief drawing lesson…

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Q \$/Q SATC(Q) AVC(Q) SMC(Q) SMC of the first unit equals AVC when Q = 1, so they share the same intercept. Use the average-and-marginal relationships to position the cost functions properly. Gap between SATC and AVC is AFC, which falls as Q rises.

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Input choice Short run In our two-input model, the firm’s existing level of capital K 0 and its desired output Q dictate its choice of inputs. Long run For any desired Q, typically many input combinations are possible. What’s best?
Cost-minimizing input choice rule To minimize total cost, choose inputs so that: MP K MP L P K P L Marginal product of the last dollar spent on each input must be the same. 40 60 81 2

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Cost-minimizing input choice rule To minimize total cost, choose inputs so that: MP K MP L P K P L Marginal product of the last dollar spent on each input must be the same.
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## This document was uploaded on 10/27/2011 for the course ECONOMICS 103 at Rutgers.

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Lecture+14+March+9 - Todays Agenda Warning notices...

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