Download PDF by David F. Heathfield: An Introduction to Cost and Production Functions

By David F. Heathfield

ISBN-10: 0333416074

ISBN-13: 9780333416075

ISBN-10: 1349187216

ISBN-13: 9781349187218

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E. prices offactors and output) and partly by the technological choice set represented by the production function . e. e. a point on the isoquant) such as to maximise profits. We shall analyse these two aspects in the context of a simple two-factor model. 2 The Isocost Line Let us assume that the prices of our two inputs, v 1 and PI and P2 respectively. 1) 28 Cost Functions and the Theory of the Firm 29 An isocost line is a line representing all combinations of VI and V 2 which can be purchased for a particular sum of money, at a constant (ISO) tot al cost , TC = TC.

E. a point on the isoquant) such as to maximise profits. We shall analyse these two aspects in the context of a simple two-factor model. 2 The Isocost Line Let us assume that the prices of our two inputs, v 1 and PI and P2 respectively. 1) 28 Cost Functions and the Theory of the Firm 29 An isocost line is a line representing all combinations of VI and V 2 which can be purchased for a particular sum of money, at a constant (ISO) tot al cost , TC = TC. 3) and the intersections with the axes are TC / P I and TC / P 2 .

The marginal revenue of that unit must accordingly be lower than its price. For simplicity, we shall consider the case with a linear demand curve. 16) where ao, al are constants (ao > 0, al > 0). This is a straight line from the point ao on the P-axis to the point aolal on the q-axis. 16). -2 - oT R _ o(aoq - a l q2) - ao a,q MR - -- oq oq which is a straight line from the point Go on the P-axis to the point ao/2a, on the q-axis. 12. Profit maximisation implies the production of q* units, because at q*, MR = Me.

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An Introduction to Cost and Production Functions by David F. Heathfield


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