The optimal to see how this happens for expenditure

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: irm wants to choose the cost minimizing ( ) bundle (or bundles) on the iso-quant curve. The “optimal” ). To see how this happens, for expenditure is a function of, and determined, after we solve the CMP for ( illustrative purposes, superimpose the target iso-quant curve for with iso-cost lines for various expenditure levels: 4 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. Long Run CMP for a firm with Constraint Objective The optimal bundle of inputs is on the “lowest “iso-cost line touching the iso-quant curve for . The following graph shows the difference between the UMP and CMP (you should convince yourself that none of the orange dots below are optimal choices): UMP (with monotone preferences) Long Run CMP Constraint Constraint Objective Minimize Cost Objective Maximize utility 0 0 Even though we’ll do the short run CMP in the next chapter, for the sake of ill...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online