Chapter20CostMinimization.pptVIP

Chapter 20 Cost Minimization 20.1 Cost Minimization Cost minimization: The cheapest way to produce a given amount of output. The isocost line: All the combinations of inputs that yield a given level of cost, C. w1x1+w2x2=C To minimizing cost, the firm looks for the lowest isocost line tangent to the isoquant. 20.1 Cost Minimization 20.1 Cost Minimization Consider any change in the pattern of production (△x1, △x2) that keeps output constant. Such a change must satisfy MP1△x1+ MP2△x2=0 If we are at the cost minimum, then this change cannot lower costs, so we have w1△x1+w2△x2≥0 20.1 Cost Minimiza