【文章內(nèi)容簡(jiǎn)介】 e three isocost lines A K1 L1 K3 L3 K2 L2 Chapter 7 Slide 50 Input Substitution When an Input Price Change C2 This yields a new bination of K and L to produce Q1. Combination B is used in place of bination A. The new bination represents the higher cost of labor relative to capital and therefore capital is substituted for labor. K2 L2 B C1 K1 L1 A Q1 If the price of labor changes, the isocost curve bees steeper due to the change in the slope (w/L). Labor per year Capital per year Chapter 7 Slide 51 Cost in the Long Run ? Isoquants and Isocosts and the Production Function KL MPMP M RTS ???? LKrwLK ????? l i n ei s o c o s t of S l o p erwMPMPKL ?? a ndChapter 7 Slide 52 Cost in the Long Run ? The minimum cost bination can then be written as: ? Minimum cost for a given output will occur when each dollar of input added to the production process will add an equivalent amount of output. rwKL MPMP ?Chapter 7 Slide 53 Cost in the Long Run ? Question ?If w = $10, r = $2, and MPL = MPK, which input would the producer use more of? Why? Chapter 7 Slide 54 The Effect of Effluent Fees on Firms’ Input Choices ? Firms that have a byproduct to production produce an effluent. ? An effluent fee is a perunit fee that firms must pay for the effluent that they emit. ? How would a producer respond to an effluent fee on production? Chapter 7 Slide 55 ? The Scenario: Steel Producer 1) Located on a river: Low cost transportation and emission disposal (effluent). 2) EPA imposes a per unit effluent fee to reduce the environmentally harmful effluent. The Effect of Effluent Fees on Firms’ Input Choices Chapter 7 Slide 56 ? The Scenario: Steel Producer 3) How should the firm respond? The Effect of Effluent Fees on Firms’ Input Choices Chapter 7 Slide 57 The CostMinimizing Response to an Effluent Fee Waste Water (gal./month) Capital (machine hours per month) Output of 2,000 Tons of Steel per Month A 10,000 18,000 20,000 0 12,000 Slope of isocost = 10/40 = 2,000 1,000 4,000 3,000 5,000 5,000 Chapter 7 Slide 58 The CostMinimizing Response to an Effluent Fee Output of 2,000 Tons of Steel per Month 2,000 1,000 4,000 3,000 5,000 10,000 18,000 20,000 0 12,000 Capital (machine hours per month) E 5,000 3,500 Slope of isocost = 20/40 = B Following the imposition of the effluent fee of $10/gallon the slope of the isocost changes which the higher cost of water to capital so now bination B is selected. A Prior to regulation the firm chooses to produce an output using 10,000 gallons of water and 2,000 machinehours of capital at A. C F Waste Water (gal./month) Chapter 7 Slide 59 ? Observations: ? The more easily factors can be substituted, the more effective the fee is in reducing the effluent. ? The greater the degree of substitutes, the less the firm will have to pay (for example: $50,000 with bination B instead of $100,000 with bination A) The Effect of Effluent Fees on Firms’ Input Choices Chapter 7 Slide 60 ? Cost minimization with Varying Output Levels ?A firm’s expansion path shows the minimum cost binations of labor and capital at each level of output. Cost in the Long Run Chapter 7 Slide 61 A Firm’s Expansion Path Labor per year Capital per year Expansion Path The expansion path illustrates the leastcost binations of labor and capital that can be used to produce each level of output in the longrun. 25 50 75 100 150 100 50 150 300 200 A $2021 Isocost Line 200 Unit Isoquant B $3000 Isocost Line 300 Unit Isoquant C Chapter 7 Slide 62 A Firm’s LongRun Total Cost Curve Output, Units/yr Cost per Year Expansion Path 1000 100 300 200 2021 3000 D E F Chapter 7 Slide 63 LongRun Versus ShortRun Cost Curves ? What happens to average costs when both inputs are variable (long run) versus only having one input that is variable (short run)? Chapter 7 Slide 64 LongRun Expansion Path The longrun expansion path is drawn as before.. The Inflexibility of ShortRun Production Labor per year Capital per year L2 Q2 K2 D C F E Q1 A B L1 K1 L3 P ShortRun Expansion Path Chapter 7 Slide 65 ? LongRun Average Cost (LAC) ? Constant Returns to Scale ?If input is doubled, output will double and average cost is constant at all levels of output. LongRun Versus ShortRun Cost Curves Chapter 7 Slide 66 ? LongRun Average Cost (LAC) ? Increasing Returns to Scale ?If input is doubled, output will more than double and average cost decreases at all levels of output. LongRun Versus ShortRun Cost Curves Chapter 7 Slide 67 ? LongRun Average Cost (LAC) ? Decreasing Returns to Scale ?If input is doubled, the increase in output is less than twice as large and average cost increases with output. LongRun Versus ShortRun Cost Curves Chapter 7 Slide 68 ? LongRun Average Cost (LAC) ? In the longrun: ?Firms experience increasing and decreasing returns to scale and therefore longrun average cost is “U” shaped. LongRun Versus ShortRun Cost Curves Chapter 7 Slide 69 ? LongRun Average Cost (LAC) ? Longrun marginal cost leads longrun average cost: ?If LMC LAC, LAC will fall ?If LMC LAC, LAC will rise ?Therefore, LMC = LAC at the minimum of LAC LongRun Versus ShortRun Cost Curves Chapter 7 Slide 70 LongRun Average and Marginal Cost Output Cost ($ per unit of output LAC LMC A Chapter 7 Slide 71 ? Question ? What is the relationship between longrun average cost and longrun marginal cost when longrun average cost is constant?