1. Chapter 6 Cost and Choice

2. Figure 6.1 A Simplified Jam-Making Technology

3. Figure 6.2 The Cost Function for Our Simplified Jam-Making Technology

4. Figure 6.3 The Jam-Making Technology

5. Figure 6.4 Isocost Curves and the Optimal Combination of Inputs

6. Figure 6.5 Isocosts and Isoquants

7. Solved Problem 6.2 1) What is the MP l and the MP k at the labor-capital combination (2,2)? 2) What is the least-cost way of producing 235 units of output when the price of capital is $1 and the price of labor is $2?

8. Figure 6.6 A Long-Run Cost Function

9. Figure 6.7 The Optimal Combination of Inputs in the Short Run

10. Figure 6.8 The Leontief Production Function

11. Figure 6.9 Optimal Input Combinations in the Leontief Technology

12. Figure 6.10 A Cost Function Associated with the Leontief Technology

13. Figure 6.11 Isoquants Associated with the Cobb- Douglas Technology

14. Figure 6.12 Cobb-Douglas Production Function

15. Figure 6.14(a) Long- and Short-Run Production Functions

16. Figure 6.14(b) Long- and Short-Run Production Functions

17. Figure 6.15(a) Short-Run Cost Function

18. Figure 6.16 Some Short-Run Average Cost Curves Output

19. Solved Problem 6.6 Suppose it costs eBay $10M to get established. Also suppose it currently has 100,000 auctions occurring. Assume the marginal cost of adding another auction is $40. 1) What is the AC of the 100,000 th auction? $140 AFC + AVC $10M/100,000 + (100,000 x $40)/100,000 2) What is the AC of the 100 th auction? $100,040 AFC + AVC $10M/100 + (100,000 x $40)/100 3) What is the MC of the 100 th auction? $40

20. Figure 6.17 Short-Run Total Cost Functions and a Long-Run Total Cost Function

21. Figure 6.20 The Relationship between Long-Run and Short-Run Marginal Cost Functions Short run expansion path E

22. Figure 6.21 Long-Run and Short-Run Marginal Costs