ECON 2X03 Lecture Notes - Lecture 3: Statics, Comparative Statics, Isocost
18 Apr 2013
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Endogenous variable: one which the models attempts to explain. Exogenous variable: one which the model treats as given/fixed and uses to explain the model. In the cost-min model: endogenous = costs, costs of production exogenous = outputs, input costs, production technology. Comparative statics: the systematic analysis of how the exogenous variables affect the endogenous ones. Changes in output: how does the firm"s cost-minimizing input bundle change as desired output changes (but not input costs: normal input: one for which the cost- minimizing quantity increases as output increases. Inferior input: one for which the cost-min. quantity falls as output increases. It is downward sloping if one input is normal and the other is inferior. Input costs: suppose the cost of one input, say input one, changes while output and the other input"s (#2) cost remain unchanged. A firm has a production function y = (z11/2+z21/2).
