ajaz_eco_204_2012_2013_chapter_12_Long_Run_CMP

As long as the firm is in case c then and the cost

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Unformatted text preview: st function exhibits constant scale economies. 57 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. Case D Check if/when: ⏟ Check if/when: ⏟ Propose: Propose: In this case the FOCs become: [{ Since we see that } { } For case D to happen, equate the expressions for : That is, Case D occurs when the iso-cost line is tangent to the iso-quant or when “capital and labor are comparatively equally cheap”. As long as the firm is in case D then it can produce output by choosing any bundle of inputs on: { For example, it can use no labor and } . The cost function depends on which combination of labor and capital is chosen. For example, we know the maximum amount of labor that can be used is and if the firm chooses then: 58 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. In which case the cost function will be: [ 59 ECO 204 Chapter 12: a Firm’s Cost Minimization Problem (this version 2012-2013)...
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