Lecture 12 - Lecture 12 Costs I Mention of processing...

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Lecture 12 Costs I Mention of processing olives and grapes brings up the word “extortion”; the literal meaning of the word “is to squeeze the last drop out of a thing.” The gifts of God, we are told, which are the bounties of the earth, are to be used “with judgment, not to excess, neither by extortion” (D&C 59:20). How often it is that these last drops mean the extra profit we so eagerly pursue. Nibley, Hugh. “How To Get Rich,” Approaching Zion , pp. 193. The Economics Outline 1. Input Costs and Total Costs 2. Cost Minimization 3. Output Maximization 4. Derived Demand for Inputs 5. Expansion Path 6. Working an Example 7. Cost Functions 7.1. Total 7.2. Average 7.3. Marginal The Mathematics Outline 1. Lagrangian 2. Duality We will now shift our attention to costs and develop the conditions under which a firm minimizes production costs. Input Costs and Total Costs Labor Costs: w = hourly wage rate Capital Costs: v = hourly rental rate (cost of the machine for its best alternative use) Economic Cost: The economic cost of any input is the payment required to keep that input in its present employment. Equivalently, the economic cost of the input is the remuneration the input would receive in its best alternative employment.
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