1. L17
Cost Functions

2. Producers Producers: have technology Assumptions: They maximize profit
They are price takers

3. Profit Maximization DRS: secrets of happiness
CRS problem: problem well defined only for
IRS profit either zero or infinity

4. 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

5. Isoquant Map

6. Technical Rate of Substitution (TRS)

7. Isocost map

8. Secret of Happiness

9. Example

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

11. Arbitrary y, (DRS)

12. Arbitrary y

13. DRS and Cost Function

14. Constant Returns to Scale