ajaz_eco_204_2012_2013_chapter_12_Long_Run_CMP

E to produce is due to increasing returns to scale

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Unformatted text preview: t be strictly concave. You should draw similar graphs for constant and decreasing returns to scale and convince yourself that constant returns to scale linear cost function and that decreasing returns to scale strictly convex cost function. We can also use the Cobb-Douglas production function to establish general results about the average cost and marginal cost functions. We showed earlier that: 45 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 Increasing RTS Constant RTS () () () ( () Linear cost function Strictly concave cost function Decreasing RTS Strictly convex cost function () ) () ( As As constant As As As constant ) As Having argued that: ( ){ We now prove the following general results: Increasing RTS Constant RTS Decreasing RTS Strictly concave cost function () Linear cost function () Strictly convex cost function () As As constant As As As constant As Note: Remember that increasing returns to scale does not mean the firm has economies of scale, etc. The only time these concepts coincide is when the inputs expansion path is linear. First, we show that: 46 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. { By defi...
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This document was uploaded on 01/19/2014.

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