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Unformatted text preview: ts and cost have a linear relationship with output. Notice that inputs expansion path is also linear and given by: Is it surprising that the inputs expansion path is also the corners line? No. You should draw a graph and see why this is
Let’s quantify the link between inputs and output: use the “log method” for computing elasticities to show that: 50
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. That is, increasing production by 1% requires using 1% more labor and capital and boosts cost by 1%.
the firm will use less labor and capital to produce the same target output (what’s happening is that
the production “mountain” so that we can produce the same output by using fewer inputs). In fact, you should show
these elasticities: ● Since labor and capital cannot be substituted for each other, it means that with
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This document was uploaded on 01/19/2014.
- Fall '14