ECON10A_15

# ECON10A_15 - Midterm2 Midterm 2 Fri Nov 18 Last name A-L...

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Midterm 2 Midterm 2: Fri, Nov 18 Last name A-L: Chem 1179 Last name M-Z: Buch 1910 Bring ID to exam! 1/4/2008 1

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1/4/2008 2 Review
1/4/2008 3 Theory of Cost Long Run

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1/4/2008 4 Isocost Line Definition: Set of input bundles that cost the same, given w and r. Say total cost is TC 0 . If use only labor then wL 0 = TC 0 → L 0 = TC 0 / w If use only capital then rK 0 = TC 0 → K 0 = TC 0 / r L K TC 0 /r TC 0 /w
1/4/2008 5 Every input bundle costs something…. So There are many isocost lines…. Isocost Lines Cover the Plane Graphically: L K TC 4 TC 3 TC 2 TC 1 TC 5

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1/4/2008 6 How to produce Q units of output at minimum cost Min wL+rK s.t F(L,K)= Want to MINIMIZE cost Want to be on LOWEST isocost line The Cost Minimization Problem Graphically: L K F(L,K)= Q Q
1/4/2008 7 Tangency Condition: L*, K* satisfy slope of isoquant= slope of isocost line MRTS(L*,K*)=w/r Also must satisfy constraint: F(L, K)= The Cost Minimization Problem Graphically: L K F(L,K)= Q Q L* K*

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ECON10A_15 - Midterm2 Midterm 2 Fri Nov 18 Last name A-L...

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