ECON 110 Chapter Notes - Chapter 8: Production Function, Profit Maximization, Marginal Product
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26 Aug 2013
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In making these choices, the profit-maximizing firm will try to be technically efficient: technical efficiency: when a given number of inputs are combined in such a way as to maximize the level of output. Total efficiency is not enough for profits to be maximized: the firm must also choose from among the many technically efficient options the one that produces a given level of output at the lowest cost. An firm that seeks to maximize profits in the long run should select the production method that produces its output at the lowest possible cost. Cost minimization: an implication of profit maximization that firms choose the production method that produces any given level of output at the lowest cost possible. If investing in labour produces more output than investing in capital, then the firm can reduce costs by spending less on capital and more on labour.
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