1. L15
Producers

2. Producers Producers: have a technology
Technology given by production function
Two inputs: Capital and Labor
Example
MPL and MPK (decreasing)
Short and Long run (fixed K or not)
Constant Returns to Scale

3. Short Run (fixed K) Profit maximization Price taking
Example (Short run)

4. Short run: Demand for Labor

5. Labor Market: Equilibrium
Capital
Preferences
Taxes

6. Labor Market: Minimal Wage

7. Long run ( not fixed)
We choose simultaneously and

8. Long run

9. Profit Maximization and CRS
Suppose that are optimal
What can we say about at ?
Profit maximization not always well defined

10. Cost Minimization Profit maximization: two stages
Managers: how much to sell
Engineers: How to produce it with
Today: second stage - cost minimization!
Technology + input prices = cost function
Geometrically: Isoquants and Isoprofit c

11. Technical Rate of Substitution (TRS)

12. Cost Minimization: Geometry

13. Arbitrary y

14. Returns to Scale and Cost F.

15. Fixed Cost and Sunk Cost
Fixed costs: costs that are independent from the level of production
Sunk Costs: Fixed costs that cannot be recovered.