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ECON 208 CH8 Producers In The Long Run.pdf

4 Pages

Economics (Arts)
Course Code
ECON 208
Michel Lapointe

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ECON 208 Introduction To Microeconomics Introduction To Microeconomics Chapter 8 Producers In The Long Run Firms will try to be technically efficient and economically efficientTechnical efficiency is when a given number of inputs are combined in such a way as to maximize the level of output Engineering efficiency o Output per single inputTechnical efficiency o Output per physical combination of all inputsEconomically efficiency o Output per value of the inputsCost Minimization is an implication of profit maximization that firms choose the production method that produces any given level of output at the lowest possible costFor any level of output maximizing profits requires firms to choose their inputs to minimize total costsMPMarginal Product K Capital LLabour PPriceThe above equation satisfies the condition in which a firm is maximizing profitsExample if an extra dollar spent on labour produces more output than an extra dollar spent on capital the firm can reduce costs by spending less on capital and more on labourThe Principle Of Substitution The principle that methods of production will change if relative prices of inputs change with relatively more of the cheaper input and relatively less of the more expensive input being usedThe LRAC Long Run Average Cost curve indicates the minimal achievable cost for each level of output The LRAC Long Run Average Cost curve separates unattainable and attainable cost levels given technology and factor pricesIt is usually U shaped
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