ECO 405 Lecture Notes - Lecture 10: Fixed Capital, Production Function, Variable Cost

• School: University at Buffalo
• Department: Economics
• Course: ECO 405
• Professor: Monica Cherry

Document Summary

Simplifying assumptions: there are only two inputs. Economic actors have only limited flexibility in their actions. The capital input is held constant at k1. The firm is free to vary only its labor input. Short-run total cost for the firm is sc = vk1 + wl. Short-run fixed costs are costs associated with fixed inputs (vk1) Short-run variable costs are costs associated with variable inputs (wl) Deriving short-run cost functions where a costs function tells us the relationship btwn costs & inputs (& the costs of the inputs. ) To find the relationship btwn q & l (since k is fixed) we look at the production function. Solve for l as a function of q & put this in the cost function. Example: suppose that a firm uses both labor (l) & capital (k) as inputs and has the long-run production function. Sc = cost of capital x fixed capital (k) + wage rate x l.