ajaz_eco_204_2012_2013_chapter_12_Long_Run_CMP

Do not distribute since we see that for case b

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Unformatted text preview: parameters. Note that: Since the cost function is linear (or since ) it means the production function has constant returns to scale. Finally, since the input expansion path is also linear, the cost function exhibits constant scale economies. Case C Propose Check if/when: ⏟ ⏟ Check if/when: Propose: In this case the FOCs become: 56 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. ⏟ [{ Since we see that } For case C to happen: That is, Case C occurs when the iso-cost line is steeper than the iso-quant or when “capital is comparatively cheaper than labor”. As long as the firm is in case C then and the cost function will be: Notice that demand for labor and capital a does not depend on input prices (why not?). As an exercise you should work out the elasticities of labor, capital and cost with respect to the parameters. Note that: Since the cost function is linear (or since ) it means the production function has constant returns to scale. Finally, since the input expansion path is also linear, the co...
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