1. L16
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. Technical Rate of Substitution (TRS)

6. Technical Rate of Substitution (TRS)

7. Secret of Happiness

8. Example

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

10. Arbitrary y

11. DRS and Cost Function

12. Constant Returns to Scale