ajaz_eco_204_2012_2013_chapter_12_Long_Run_CMP

Eco 204 s ajaz hussain do not distribute case a

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Unformatted text preview: derstood by using intuition from the linear UMP in consumer theory: in the linear CMP, the optimal bundle of inputs depends on the slope of the iso-cost curve vis a vis the slope of the linear isoquant: Case B Case C Target output Target output Case D Target output ⏟ Let’s prove these cases. Case B Check if/when: Propose ⏟ ⏟ Propose: Check if/when: In this case the FOCs become: 55 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 B to happen: That is, Case B occurs when the iso-cost line is flatter than the iso-quant or when “labor is comparatively cheaper than capital”. As long as the firm is in case B then and the cost function will be: Notice that demand for labor and capital 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...
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This document was uploaded on 01/19/2014.

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