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6. (General) Long Run Cost Minimization Problems
Before we do long run CMPs for specific production functions let us look at the general long run CMP to develop an
intuitive understanding of the analytical techniques and results. The optimal mix of inputs required to produce a strictly
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. positive and exogenously given target output level in the long run is found by solving the long run cost minimization
problem (here, all inputs have a lower limit of zero):
⏟ ) ⏟ The firm can solve this CMP in terms of numbers or in terms of parameters7. Solving a numerical CMP would give values
for the optimal inputs from which we would get a dollar value for the minimal cost of producing a specific target output.
On the other hand, solving a parametric CMP would give us equations (in terms of parameters) for the optimal inputs
from which we would get an equation (in terms of parameters) for the minimal cost of producing an arbitrary target
output (this cost equation is known as the “cost function”) from which we can derive the ECO 100 graphs for average
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This document was uploaded on 01/19/2014.
- Fall '14