ajaz_eco_204_2012_2013_chapter_12_Long_Run_CMP

Unfortunately its not as simple as consumer theory

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Unformatted text preview: Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. 2. Input Prices To solve a CMP we need to know input prices. Unfortunately, it’s not as simple as consumer theory where the consumer took the market price of goods as exogenously given. We start by recognizing that: ● Some inputs (such as labor, computer leases, aircrafts, etc.) can be leased to “produce” output. For example, due to unexpectedly high demand next month, Air Canada can lease an aircraft for a month from the ILFC. For “leased inputs” the price of inputs is simply the “market price/lease rate” or the “contractual price/lease rate” which the firm takes as “exogenously given” (much like the consumer was a price taker). For example, here are wage rates for various types of labor in Fort McMurray (Canada), here is the contractual fee for Richard Florida (resident intellectual at the Rotman School of Management), and here is the price of leasing an Airbus 320 for a month. ● Some inputs (such as, raw materials like Alumina, electricity, etc.) can be purchased and used up to “produce” output. For “purchased inputs used up i...
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