isocosts summarize prices of inputs graph by harcourt, inc. each isocost represents a given total...
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![Page 1: Isocosts Summarize Prices of Inputs Graph by Harcourt, Inc. Each isocost represents a given total cost – further out for higher costs. Slope of isocost](https://reader036.vdocuments.net/reader036/viewer/2022083005/56649f165503460f94c2cd42/html5/thumbnails/1.jpg)
Isocosts Summarize Prices of Inputs
Graph by Harcourt, Inc.
Each isocost represents a given total cost – further out for higher costs.Slope of isocost reflects relative cost of inputs – it’s MCL/MCK
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Isoquants Summarize Technology
Graph by Harcourt, Inc.
Each isoquant represents a quantity of output – further out for more.Slope of isoquant is the marginal rate of technical substitution.
MRTS = MPL/MPK
![Page 3: Isocosts Summarize Prices of Inputs Graph by Harcourt, Inc. Each isocost represents a given total cost – further out for higher costs. Slope of isocost](https://reader036.vdocuments.net/reader036/viewer/2022083005/56649f165503460f94c2cd42/html5/thumbnails/3.jpg)
Perfect Technological Complements
Graph by Harcourt, Inc.
No substitution is possible, so isoquants are right angles. Note that perfect substitutes would be straight lines - look like isocosts.
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Profit Maximizing Choice of Inputs
Graph by Harcourt, Inc.
For the desired quantity of output, set MCL/MCK = MPL/MPK so the last dollar spent on each input is equally productive.
![Page 5: Isocosts Summarize Prices of Inputs Graph by Harcourt, Inc. Each isocost represents a given total cost – further out for higher costs. Slope of isocost](https://reader036.vdocuments.net/reader036/viewer/2022083005/56649f165503460f94c2cd42/html5/thumbnails/5.jpg)
Long Run Effect of an Increase in the Wage
Graph by Harcourt, Inc.
A wage increase implies higher MC and thus lower optimal output. With the lower output (scale effect) reduce labor (Y) but steeper isoquant (substitution effect) so increase capital (Z).
![Page 6: Isocosts Summarize Prices of Inputs Graph by Harcourt, Inc. Each isocost represents a given total cost – further out for higher costs. Slope of isocost](https://reader036.vdocuments.net/reader036/viewer/2022083005/56649f165503460f94c2cd42/html5/thumbnails/6.jpg)
Categories of Demand Elasticities
Graph by Harcourt, Inc.
Vertical ED is perfectly inelastic.
Horizontal ED is perfectly elastic.
Curved ED is unit elastic.
At their intersection, both demand curves are unit elastic, but the steeper one is relatively less elastic overall.
![Page 7: Isocosts Summarize Prices of Inputs Graph by Harcourt, Inc. Each isocost represents a given total cost – further out for higher costs. Slope of isocost](https://reader036.vdocuments.net/reader036/viewer/2022083005/56649f165503460f94c2cd42/html5/thumbnails/7.jpg)
Elasticities Along a Straight-line Demand Curve
Graph by Harcourt, Inc.
Unit elastic at midpoint.
Elastic over top half.
Inelastic over bottom half.
Note that total wage bill is maximized at point of unit elasticity.
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Firm-Specific Training MRP > W
Graph by Harcourt, Inc.
Without training MRP0. With training is MRP1 first then MRP2. To share cost, firm can pay W3 and not lose worker, who is only worth W0 to other firms.
If product demand, and thus MRP drops, W3 will likely still be below the new MRP and thus the worker will not be laid off.
![Page 9: Isocosts Summarize Prices of Inputs Graph by Harcourt, Inc. Each isocost represents a given total cost – further out for higher costs. Slope of isocost](https://reader036.vdocuments.net/reader036/viewer/2022083005/56649f165503460f94c2cd42/html5/thumbnails/9.jpg)
Path of Employment with Adjustment Costs
85
90
95
100
105
110
115
1 25
Time
Optimal w/ No Adj Costs Optimal w/ Adj Costs
Costs of hiring (H) and firing (F) make it optimal to have less employment during a boom and more employment during a bust. Only hire if MRP-W>H, only fire if W-MRP>F.