Ch08 - Chapter 8 Cost Curves Long-Run Total Cost Curve...

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Chapter 8 Cost Curves
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Long-Run Total Cost Curve Consider a TV manufacturer’s long-run cost minimization problem (holding input prices fixed): If the firm wants to produce 1 million TVs per year, point A is the optimum combination of the inputs and the total cost is TC 1 (next slide, top). TC 1 = wL 1 + rK 1 . If the firm wants to produce 2 million TVs per year, point B is the optimum combination of the inputs and the total cost is TC 2 . TC 2 = wL 2 + rK 2 . For each isoquant, there exists a corresponding isocost satisfying the tangent condition. In other words, for each quantity of output Q , firm can find a minimized total cost. Long-run total cost curve shows how total cost varies with output, holding input prices fixed and choosing all inputs to minimize cost (next slide, bottom). The long-run total cost curve must be increasing in output Q and must equal 0 when Q = 0.
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Long-Run Total Cost Curve
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Shift in Long-Run Cost Curve Suppose that the firm wants to produce 1 million TVs per year. And also suppose that price of capital increases, holding output and the price of labor constant.
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This note was uploaded on 02/29/2012 for the course 320 322 taught by Professor Macro-williams,micro-yoshi during the Fall '10 term at Rutgers.

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Ch08 - Chapter 8 Cost Curves Long-Run Total Cost Curve...

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