北大微观经济学课件Ch20CostMinimization.pptVIP

Chapter Twenty Cost Minimization Cost Minimization A firm is a cost-minimizer if it produces any given output level y 3 0 at smallest possible total cost. c(y) will denote the firm’s smallest possible total cost for producing y units of output. c(y) is the firm’s total cost function. Cost Minimization When the firm faces given input prices w = (w1,w2,…,wn) the total cost function will be written as c(w1,…,wn,y). The Cost-Minimization Problem Consider a firm using two inputs to make one output. The firm’s production function is y = f(x1,x2). Take the output level y 3 0 as given. Take the input prices w1 and w2 as given. Then the cost of an input bundle (x1,x2) is w1x1 + w2x2. The Cost-Minimization Problem For given w1, w2 and y, the firm’s cost-minimization problem is to solve The Cost-Minimization Problem The levels x1*(w1,w2,y) and x1*(w1,w2,y) in the least-costly input bundle are the firm’s conditional demands for inputs 1 and 2. The firm’s total (smallest possible) cost for producing y output units is therefore Conditional Input Demands For given w1, w2 and y, how are the levels of inputs 1 and 2 in the least costly input bundle located? And how is the firm’s total cost function computed? Iso-cost Lines A curve which contains all of the input bundles which cost the same amount is an iso-cost curve. E.g., given w1 and w2, the $100 iso-cost line has the equation Iso-cost Lines In general, given w1 and w2, the equation of the $c iso-cost line iswhich rearranges to The slope is - w1/w2. Iso-cost Lines Iso-cost Lines The y’-Output Unit Isoquant The Cost-Minimization Problem The Cost-Minimization Problem The Cost-Minimization Problem The Cost-Minimization Problem The Cost-Minimization Problem The Cost-Minimization Problem The Cost-Minimization Problem A Cobb-Douglas Example of Cost Minimization A firm has a Cobb-Douglas technology, its production function being The firm faces given input prices w1 and w2. What are the firm’s conditional input demand