ECO100Y5 Chapter Notes - Chapter 8: Profit Maximization, Marginal Product
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ECO100Y5 Full Course Notes
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Chapter 8 notes producers in the long run. To maximize proits in long run should select producion method that produces output at lowest cost. Raio of marginal products on let side compares contribuion to output of last unit of capital and last unit of labour. If raio on let side was less, it would pay irm to switch to method of producion that uses less labour and more capital: when raio is equal, most cost-minimizing method. Pos; methods of producion will change if relaive prices of inputs change, with relaively more of cheaper input and relaively less of more expensive input being used. Firms moivated 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 producion.