ECO100Y5 Chapter Notes - Chapter 8: Profit Maximization, Marginal Product

• School: UTM
• Department: Economics
• Course: ECO100Y5
• Professor: Michael H O

Document Summary

Chapter 8 notes producers in the long run. To maximize profits in long run should select production method that produces output at lowest cost. Ratio of marginal products on left side compares contribution to output of last unit of capital and last unit of labour. If ratio on left side was less, it would pay firm to switch to method of production that uses less labour and more capital: when ratio is equal, most cost-minimizing method. Pos; methods of production will change if relative prices of inputs change, with relatively more of cheaper input and relatively less of more expensive input being used. Firms motivated to use less of factors that are more scarce to economy and more factors that are abundant. Long run average cost; curve showing lowest possible cost of producing each level of output when all inputs can be varied. Determined by current technology and prices of factors of production.