It can also be shown that if the inputs expansion

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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...
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This document was uploaded on 01/19/2014.

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