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Chapter 20

Chapter 20. Cost Minimization. Basic model :. min x1, x2 w 1 x 1 + w 2 x 2 subject to f (x 1 , x 2 ) = y. gives c ( w 1 , w 2 , y ). Isocost lines : p351. x 2 = C/w 2 – w 1 x 1 /w 2. Tangency of an isocost line and an isoquant.

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Chapter 20

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  1. Chapter 20 Cost Minimization

  2. Basic model: • minx1, x2 w1 x1 + w2 x2 subject to f (x1 , x2 ) = y gives c (w1 , w2 , y )

  3. Isocost lines: p351 x2 = C/w2 – w1x1/w2.

  4. Tangency of an isocost line and an isoquant. – MP1 (x1, x2) / MP2 (x1, x2 ) = TRS(x1, x2 ) = – w 1 / w 2

  5. x2 . Optimal choice Isocost lines slope= – w 1 / w 2 x2* Isoquant f (x1 , x2 ) = y x1* x1

  6. Minimizing costs for y = min{ax1 , bx2};完全互补 y = ax1 + bx2; 完全替代 and y = x1a x2b. Cobb-Douglas

  7. Fixed and variable costs. (FC and VC) Total, average, marginal, and average variable costs. (TC, AC, MC and AVC)

  8. MC > (<) AC if and only if AC is increasing (decreasing) MC cuts AC (AVC) at AC’s (AVC’s) extreme.

  9. AC MC AC AVC MC . AVC . y

  10. Chapter 21 Cost Curves

  11. The area under MC gives VC: ∫MC = VC

  12. MC MC Variable costs y

  13. Division of output among plants of a firm. MC1 MC2

  14. Typical cost curves.

  15. Example: c (y) = y 2 + 1.

  16. MC AC MC AVC AC AVC . 2 1 y The cost curves for c (y) = y 2 + 1

  17. LR and SR cost curves.

  18. AC SAC=C(y1, k*)/y . LAC=C(y)/y y y* Short-run and long-run average costs

  19. Short-run average cost curves AC Long-run average cost curves y* y Short-run and long-run average costs

  20. Sunk costs are costs that are not recoverable. A special kind of fixed costs.

  21. Chapter 22 Firm Supply

  22. Pure competition. Price Taker..

  23. The demand curve facing a competitive firm. p380 Market demand P Demand curve facing firm Market price P* Q

  24. The supply decision: FOC: MC ( y* ) = p. SOC: MC ’ ( y* ) ≥ 0.

  25. The firm’s supply curve is the upward-sloping part of MC that lies above the AVC curve. The part of MC is also seen as the inverse supply function.

  26. AC MC AC AVC MC AVC firm’s supply curve P y y1 y2

  27. Three equivalent ways to measure the producer’s surplus ( = R – VC =π + FC ).p389

  28. P389 Example: c ( y ) = y 2 + 1.

  29. LR: p = MC ( y, k ( y ) ) vs SR: p = MC ( y, k )

  30. Chapter 23 Industry Supply

  31. Horizontal summation gives the industry supply.

  32. P S1 S2 S1 + S2 Y

  33. Entry and exit.

  34. The “zero profit” theorem.

  35. Free entry vs barriers to entry.

  36. Rent seeking. Economists versus lobbyists

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