ECON 208 Lecture 12: Chapter 8
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19 Oct 2015
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Econ 208- lecture 12- producers in the long run. In the long run, all inputs are variable. Firms strive for both technical efficiency and economic efficiency. For any level of output, maximizing profits requires firms to choose their inputs to minimize total costs. Using k and l to represent capital and labour, and pl and pk as the price for the two factors, cost is minimized when: The principle of substitution: firms adjust the quantities of factors in response to changing relative factor prices. Examples of the principles of substitution in action: Methods of producing the same product often differ across countries. When all factors of production can be varied, consider the least- cost method of producing any level of output. The long run average cost (lrac) curve separates unattainable and attainable cost levels, given technology and factor prices. When output exceeds qm, the firm has rising unit costs.
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