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This is illustrated below: 8 For simplicity, we don’t discuss changes in the parameters that the inputs must be greater than or equal to a minimum amount (in
this example this is zero since
ECO 204 Chapter 12: a Firm’s Cost Minimization Problem (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. New iso-cost line Initial iso-cost line 1 Target
Output 0 ( ) That is, if the price of input 2 rises, total cost must increase or stay the same (why?)
This is illustrated below: Initial iso-cost line New iso-cost line Target
A priori, we don’t know the sign of ) ; we know that since . However, one can argue that in fact is attached to an equality constraint that in theory by noting that (think about it). If
then we must have
done CMPs for specific production functions): the expression/value for Marginal cost, which cannot be negative
Note (come back to this after we have
must be identical to the expression 25
ECO 204 Chapter 12: a Firm’s Cost Minimization Problem (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S....
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- Fall '14