ECON 101 1st Edition Lecture 7 Cost curves and the Production FunctionThe expenditure line: for any given variation of prices, the different combinations availableProduction IsoquantsCost minimizing and input combinations Production Isoquantscapital labor ratio= slope of production Isoquants double amount of your product= move along the slope of the isoquantsproduce more output: use more capital and laborSlope of the Isoquants= -(Marginal product of labor/marginal product of capital)Cost minimizing and input combinations optimization: shifting the ration of labor and capital to more labor= lower the expenditure budge curve and the isoquants are tangent -(Price of Labor/Price of Capital)= -(Marginal product of Labor/Marginal product of Capital) Marginal Product of Labor/Price of Labor= Marginal Product of capital/ Price of Capital increase total expenditure: Total cost/ Price of capital Profit= total cost-total revenue slope of the total revenue curve= marginal revenueslope of the total cost curve= marginal costprofits are maximized: marginal revenue and marginal cost of a given output are equalPerfect competition: Perfectly competitive industry• firms are price takers (firms have no individually affected the marginal cost)These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.• There is freedom of entry and exit into this industry (very easy and low cost to get into an industry• Homogeneity of product (agriculture)• perfect information (no real trade secrets; can’t get a competitive edge that
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