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Principles of Microeconomics Lecture 16 – Cost Minimization Part 2 $9.94
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Principles of Microeconomics Lecture 16 – Cost Minimization Part 2
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  • Course
  • (ECON2017)
  • Institution
  • The University Of Nottingham (UON)
  • Book
  • Intermediate Microeconomics

These are the 2nd half of the notes to cost minimization. these notes cover long-run and short-run costs. Additionally they cover fixed and quasi-fixed costs.

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Document information

  • November 22, 2023
  • 1
  • 2022/2023
  • Class notes
  • Cecilia testa
  • All classes

Subjects

  • microeconomics
  • economics
  • cost minimization
  • cost function
  • sunk costs

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  • The University of Nottingham (UON)
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  • (ECON2017)

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Principles of Microeconomics Lecture – Cost Minimization

 For positive output levels y, a firm’s average total cost of producing y units is

o
 The returns-to-scale properties of a firm’s technology determine how average production costs change with
output level.
 Our firm is presently producing y’ output units.
 If a firm’s technology exhibits constant returns-to-scale, doubling its output level from y’ to 2y’ requires
doubling all input levels.
o Total production cost doubles.
o Average production cost does not change.
 If a firm’s technology exhibits decreasing returns-to-scale then doubling its output level from y’ to 2y’
requires more than doubling all input levels.
o Total production cost more than doubles.
o Average production cost increases.





 In the long-run a firm can vary all of its input levels.
 Consider a firm that cannot change its input 2 level from x 2’ units.
 The long-run cost-minimization problem is

o
o Subject to
 The short-run cost-minimization problem is

o
o subject to
 The short-run cost-min. problem is the long-run problem subject to the extra constraint that x 2 = x2’.
 If the long-run choice for x2 was x2’ then the extra constraint x2 = x2’ is not really a constraint at all and so the
long-run and short-run total costs of producing y output units are the same.
 But, if the long-run choice for x2 ¹ x2” then the extra constraint x2 = x2” prevents the firm in this short-run
from achieving its long-run production cost, causing the short-run total cost to exceed the long-run total cost
of producing y output units.
 Short-run total cost exceeds long-run total cost except for the output level where the short-run input level
restriction is the long-run input level choice.
 This says that the long-run total cost curve always has one point in common with any particular short-run
total cost curve.

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