Unformatted text preview: ht be better off using a production function
which allows inputs to be substituted (like the Cobb-Douglas) even if such a production technology has a higher
acquisition cost. The decision of selecting a production process should be made on the basis of the initial acquisition
cost as well as future input price volatility.
10 Linear Long Run Cost Minimization Problem
We now consider a company which produces output by using non-essential inputs as perfect substitutes, in the sense
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 the firm can produce the same level of output by substituting labor and capital at a constant rate of substitution.
inputs long run linear production function is:
[ Notice that inputs are not essential for production because it’s possible to produce output with positive amounts of at
least one input. For example, if input #1 is zero then as long as the firm uses positive amounts of input #2:
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This document was uploaded on 01/19/2014.
- Fall '14