My error on the perfect substitutes costs example was thinking it was wrong on the slide. Indeed with r=9/2 and w=3, the costs of using 12 units of labor and 2 units of capital is: 3*12 + 4.5*2 = 36+9=45 as listed on the slide!
Partial equilibrium models like cost minimization invoke the ceteris paribus assumption to determine the optimum. We're modeling only part of an economy e.g. we've assumed prices of the output good and prices of the inputs can be taken as given. The richer general equilibrium model captures the fuller interdependence between values. At the intermediate micro level the first general equilibrium model we'd encounter would be the Edgeworth Box.
Problem 3 Suppose that a cost-minimizing firm uses two inputs that are perfect substitutes. If the two inputs are priced the same, what do the conditional factor demands look like for the inputs?
My error on the perfect substitutes costs example was thinking it was wrong on the slide. Indeed with r=9/2 and w=3, the costs of using 12 units of labor and 2 units of capital is: 3*12 + 4.5*2 = 36+9=45 as listed on the slide!
you teach the concepts from the varian textbook very well! :))
Ben's not having it in this lecture.
Thank you !
Exam #2 Solution Walk-through: ua-cam.com/video/78zvXJpz9o0/v-deo.html
Hi there! Thank you for making this video. I'd like to ask you what happens to the isoquant and isocost when the prices of K and L increases?
WHY COST MINIMIZATION IS PARTIAL ECONOMIC EVALUATION?
Partial equilibrium models like cost minimization invoke the ceteris paribus assumption to determine the optimum. We're modeling only part of an economy e.g. we've assumed prices of the output good and prices of the inputs can be taken as given. The richer general equilibrium model captures the fuller interdependence between values. At the intermediate micro level the first general equilibrium model we'd encounter would be the Edgeworth Box.
Problem 3
Suppose that a cost-minimizing firm uses two inputs that are perfect substitutes. If the two inputs are priced the same, what do the conditional factor demands look like for the inputs?
At 42.36 how you decided that this is a interior solution?
Officially the endpoints are still corner solutions, but all points along the BC have nonzero amounts of both goods, hence interior!
Thank you!