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Microeconomia Corso E

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We use the following notation: y for the level of output. p for the price of the output. ... of the firm is the area between the price and its supply curve. ... – PowerPoint PPT presentation

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Title: Microeconomia Corso E


1
MicroeconomiaCorso E
  • John Hey

2
Compito a casa/Homework
  • CES technology with parameters c10.4, c20.5,
    ?0.9 and s1.0.
  • The production function
  • y ((0.4q1-0.9)(0.5q2-0.9))-1/0.9
  • I have inserted the isoquant for output 40 (and
    also that for output60).
  • I have inserted the lowest isocost at the prices
    w1 1 and w2 1 for the inputs.
  • The optimal combination q1 33.38 q2 37.54
  • and the cost 33.5837.54 70.92.

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What you should do
  • Find the optimal combination (either graphically
    or otherwise) and the (minimum) cost to produce
    the output for the following
  • w1 2 w2 1 y40
  • w1 3 w2 1 y40
  • w1 1 w2 1 y60
  • w1 2 w2 1 y60
  • w1 3 w2 1 y60
  • Put the results in a table.

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Results
y w1 w2 q1 q2 costo
40 1 1 32.4 37.5 70.9
40 2 1 27.9 45.2 101.1
40 3 1 25.5 51.2 127.7
60 1 1 50.1 56.3 106.4
60 2 1 41.9 67.9 151.7
60 3 1 38.3 76.7 191.6
8
Chapter 12
  • The total cost C(y) is the minimum cost to
    produce a given level of output y.
  • It is always upward-sloping (in the long period
    passes through the origin) and its shape depends
    upon the returns to scale
  • decreasing ? convex
  • constant ? linear
  • increasing ? concave

9
Chapter 12
  • The total cost C(y) is the minimum cost to
    produce a given level of output y.
  • The average cost C(y)/y is the slope of the
    line from the origin to the total cost curve.
  • The marginal cost the rate at which total cost
    increases with output is equal to the slope of
    the total cost curve.

10
Constant returns to scaleTotal cost
11
Constant returns to scaleMarginal cost
12
Decreasing returns to scaleTotal cost
13
Two examples
14
Average cost at an output of 40
15
Average cost at the output of 80
16
The average cost curve
17
Marginal cost at the output 40
18
Marginal cost at the output 80
19
The marginal cost curve
20
From the total cost curve to the marginal cost
curve and back.
  • The marginal cost curve is the slope of the total
    cost curve...
  • ... hence the total cost curve is the area under
    the marginal cost curve.
  • The marginal cost curve is the derivative of the
    total cost curve...
  • ... hence the total cost curve is the integral of
    the marginal cost curve.

21
Constant returns to scale
22
Constant returns to scale
23
Decreasing returns to scale
24
Decreasing returns to scale
25
Chapter 13
  • Today we find the optimal output for a perfectly
    competitive firm...
  • ...that takes the price of its output as given.
  • We will assume to begin with that the firm has
    decreasing returns to scale.
  • We will see later that there are problems if the
    firm has increasing returns to scale.

26
Chapter 13
  • We use the following notation
  • y for the level of output.
  • p for the price of the output.
  • C(y) for the total (minimum) cost to produce a
    level of output y.
  • We find the condition for the optimal output of
    the firm and hence its supply curve.
  • We prove a familiar result about the
    profits/surplus of the firm.

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30
Chapter 13
  • The condition for the optimal output
  • p marginal cost...
  • ... where marginal cost is rising.
  • It follows that the supply curve of the firm is
    simply its marginal cost curve.
  • The profit/surplus of the firm is the area
    between the price and its supply curve.

31
Chapter 13
  • Goodbye!

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