ajaz_eco_204_2012_2013_chapter_12_Long_Run_CMP

For examples a flight requites a certain number of

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Unformatted text preview: roduction we write this as: ( ) ( ) is not differentiable everywhere. To solve This problem cannot be solve by calculus because the function this CMP we borrow a trick from consumer theory. If we plot the iso-quant for the target output we see that regardless of the iso-cost line slope, the optimal bundle of inputs must be at the “kink” of the iso-quant curve: 48 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. Target output Slope = Now we know that the corners of the complements iso-quant curves are on the line (found by equating the terms inside the “min” parentheses) and which says that units of capital must be combined with unit of labor. Now, at the optimal bundle: Since: ( If we substitute we get: ( While if we substitute ) ) we get: ( ) Thus, the optimal inputs required to produce target output are: 49 ECO 204 Chapter 12: a Firm’s Cost Minimization...
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