Questions tagged [cost]

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7
votes
2answers
31k views

How to derive firm's cost function from production function?

I recently learned how to solve the following type of problem using the method of Lagrangian multipliers: Given a consumer with utility function $u(x,y)$, wealth $w$, prices $p =(p_x,p_y)$, budget ...
4
votes
1answer
4k views

Proving AC is minimized when MC=AC

I am trying to prove that AC is mininimized when AC=MC This is how far I am: FOC: Showing what I want to prove SOC: This has to be positive in order to ensure that AC is minimized, but how can i ...
3
votes
1answer
6k views

Why does marginal cost (derivative of total cost) differ from variable cost at each level?

Why does the marginal cost equation (as the derivative of total cost equation) make predictions of variable costs that are very different from costs calculated using the Total Cost equation? Marginal ...
1
vote
1answer
929 views

Optimal production level for a typical firm in long-run

Assuming all firms have identical cost functions. Now suppose there is an increasing shift in the demand curve. As we all know that for increasing costs case, both average costs (AC) and marginal ...