ECON 208 Chapter 8: CHAPTER 8

• School: McGill University
• Department: Economics
• Course: ECON 208
• Professor: Paul Dickinson

Document Summary

In the short run, at least one factor is fixed. In the long run, all inputs are variable, thus there are numerous ways to produce any given output. In making its profit-maximizing choice, the firms try to be technically efficient. Technical efficiency: occurs when a given number of inputs are combined in such a way as to maximize the level of output. It is not enough for profits to be maximized: the firm uses the technically efficient option that has the lower cost, to maximize profit, the firm chooses the lowest cost combination of labor and capital. Economic efficiency: for any given level of output, cannot produce it with a smaller (dollar) value of inputs. Profit maximization and cost minimization: cost minimization is an implication of profit maximization that firms choose the production method that produces any given level of output at the lowest possible cost.