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L15 Producers
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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
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Short Run (fixed K) Profit maximization Price taking
Example (Short run)
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Short run: Demand for Labor
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Labor Market: Equilibrium
Capital Preferences Taxes
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Labor Market: Minimal Wage
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Long run ( not fixed) We choose simultaneously and
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Long run
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Profit Maximization and CRS
Suppose that are optimal What can we say about at ? Profit maximization not always well defined
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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
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Technical Rate of Substitution (TRS)
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Cost Minimization: Geometry
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Arbitrary y
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Returns to Scale and Cost F.
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Fixed Cost and Sunk Cost
Fixed costs: costs that are independent from the level of production Sunk Costs: Fixed costs that cannot be recovered.
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