ajaz_eco_204_2012_2013_chapter_12_Long_Run_CMP

It can also be shown that if the inputs expansion

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Cobb-Douglas long run CMP has a linear inputs expansion path tells us that if the firm has increasing returns to scale then it has economies of scale, etc. Let’s show this. Recall that: By definition, the cost per unit or average cost is: ( By definition, the cost of the next (marginal) unit, or marginal cost ) is: ( The functional form of the functions as well whether constant, or decreasing returns to scale: ) depends on whether there are increasing, Long run Cobb-Douglas CMP Increasing RTS Constant RTS () () () ( As Economies of scale Strictly convex cost function () ) As 12 () Linear cost function Strictly concave cost function Decreasing RTS () ( As constant As constant Constant economies of scale ) As As Diseconomies of scale Note to self: do the math proof for next ECO 204 class. 38 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. Cobb-Douglas Production Function and RTS Cost Functions ( ) Marginal Cost and Average Cost Functions In particular, notice that the long run Cobb-Dougl...
View Full Document

Ask a homework question - tutors are online