Unformatted text preview: f Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. UMP for a consumer with Objective Constraint As you’ll see, the two input CMP “looks” a lot like the two goods UMP but these are of course not the same problems.
For example suppose a firm’s long run CMP is: The firm wants to choose the cost minimizing bundle (or bundles of inputs) on the iso-quant curve for
the “constraint” is the iso-quant curve: ; here, Iso-quant for Constraint The “objective” is to minimize the cost of (expenditure on) inputs. To show this graphically, let’s introduce the “iso-cost
line”, the producer theory counterpart of the consumer theory “budget line”. Recall that “iso” means “same” which
means that all bundles of inputs on a iso-cost line have the same total cost. For example, consider a company with two
inputs (say) labor and capital and a specific “budget” for production (say)
). By definition,
) bundle in this “iso-cost equation” amounts to a total cost of :
ECO 204 Chapter 12: a Firm...
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