L16 Cost Functions

Returns to scale Cobb Douglass Coefficients

Profit Maximization and Price taking DRS: secrets of happiness CRS and IRS problem

Cost Minimization Profit maximization: two stages Managers: how much to sell Engineers: How to produce it Today: second stage - cost minimization! Technology + input prices = cost function

Isoquant

Technical Rate of Substitution (TRS)

Isocost map

Secret of Happiness

Example

Cost function We might be asked to find cost for different levels of output Repeat calculation No, let be a parameter Schedule. that gives cost for any is a cost function

Arbitrary y, (DRS)

Arbitrary y (CRS)

Arbitrary y (IRS)

Profit Maximization and Cost Minimization Profit Maximization (DRS) Cost Minimization?