Unformatted text preview: payments that the firm makes on its capital stock is a fixed cost. x We can use that assumption to derive shortrun average and marginal cost curves. x So start by assuming that a firm’s production function is given by: X=K 2/3 L 1/3 x Since the firm’s capital stock is fixed (by assumption) we can solve the production function for labor to find the amount of labor needed to produce various levels of output: 2 3 K X L x Its total costs are given by: wL rK TC . 2 3 K X w rK TC . Page 107...
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 Fall '10
 willis
 Economics, average variable cost

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