1. L16
Cost Functions

2. Returns to scale
Cobb Douglass
Coefficients

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

4. 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

5. Isoquant

6. Technical Rate of Substitution (TRS)

7. Isocost map

8. Secret of Happiness

9. Example

10. 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

11. Arbitrary y, (DRS)

12. Arbitrary y (CRS)

13. Arbitrary y (IRS)

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