ECON 100B Lecture Notes - Lecture 6: Isocost, Isoquant
Document Summary
Cobb-douglas: find l (q, k (bar) ) by inverting f (l, k (bar) , express c sr (q, graph c sr (q) Problem to be solved: min l, k wl + rk subject to isoquant f (l, k) = q consider isocost lines, set of all (l, k, satisfy wl+rk = c (bar, for a constant c (bar) Solving for k we get: k = c (bar) / r w / r * Graph: for c" (bar) > c (bar), the line is colored red, for c"" (bar) < c (bar), the line is colored green. Graphical illustration of long-run cost minimization (the case of an interior solution) fix q* Min l, k wl + rk subject to f (l, k) = q* The optimal (l*, k*) satisfies w / r = mp l (l*, k*) / mp k (l*, k*) Graphical illustration of long run cost minimization (possibility of corner solution) even if mrts is diminishing.
