ajaz_eco_204_2012_2013_chapter_12_Long_Run_CMP

Eco 204 s ajaz hussain do not distribute that the firm

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Unformatted text preview: ty, let’s look at a firm that uses long run CMP is: and as essential and “perfect substitute” inputs to produce output. Its [ ⏟ ⏟ Since all inputs it’s possible to produce output with zero amounts of an input we cannot drop any non-negativity constraint. Next, re-arrange the constraints: [ ⏟ [ ⏟, ⏟ ⏟ Next, we setup the Lagrangian: { } [{ } [{ } [ ⏟] [ ⏟] The FOCs and KT conditions are: ⏟ [ ⏟] 53 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. ⏟ [ ⏟] You should use the envelope theorem to see that the optimal values of the Lagrange multipliers will have the following interpretations: ( ( ) ) Since this was an inequality constraint, from the KT conditions we know that which means that raising the lower limit on required labor will either raise or maintain cost of production. ( ) Since this was an inequality constraint, from the KT conditions we know that which mea...
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