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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
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
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...
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- Fall '14