1. L17
Cost Functions

2. Producers Producers: have technology Returns to scale Constant
Decreasing
Increasing

3. Returns to Scale (Cobb-Douglass)

4. Quiz Assume production function Doubling inputs
More than doubles output
Less than doubles output
Doubles output

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

6. 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

7. Isoquant

8. Technical Rate of Substitution (TRS)

9. Isocost map

10. Secret of Happiness

11. Example

12. Arbitrary y, (DRS)

13. Arbitrary y (CRS)

14. Arbitrary y (IRS)

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