Economics 2010a Fa|2003 Edward L. Glaeser Lecture 9
Economics 2010a Fall 2003 Edward L. Glaeser Lecture 9
9. The Producer's problem Firms and maximization b. Production functions C. Supply and Profit Functions d. Cost Functions e. Duality and Producers f. Application: Urban Systems
9. The Producer’s Problem a. Firms and Maximization b. Production Functions c. Supply and Profit Functions d. Cost Functions e. Duality and Producers f. Application: Urban Systems
1. Technology The more tradition approach is to assume (1)A production correspondence, e.g f(K, L) or more generally f(2, that maps the vector of inputs z which cost w into a vector of outputs, which are then sold at prices P for total revenues Pf(z n many cases, we think of f(z) as a function - i.e. only one output-but is doesnt need to be We assume first that firms treat prices as given-i e they are price takers-ie they dont have market power (2)We assume that firms maximize profits and that they have the option(at least in the long run) to exit, i. e. earn zero profits
1. Technology The more tradition approach is to assume: (1) A production correspondence, e.g. f(K,L) or more generally fZ, that maps the vector of inputs Z which cost W into a vector of outputs, which are then sold at prices P for total revenues PfZ. In many cases, we think of fZ as a function– i.e. only one output– but is doesn’t need to be. We assume first that firms treat prices as given– i.e. they are price takers– i.e. they don’t have market power. (2) We assume that firms maximize profits, and that they have the option (at least in the long run) to exit, i.e. earn zero profits
This is of course a deeply controversial claim
This is of course a deeply controversial claim
(3 )We make some assumption about the number of firms- perhaps free entry of identical firms, perhaps something else This last assumption gives us a great deal of power-this is the equilibrium assumption in action Together, profit maximization and free entry of identical firms gives us the following two sets of conditions(assuming that the production function is continuously differentiable and concave) of() W for each input marginal revenue equals prIce. And given these first order conditions
(3) We make some assumption about the number of firms– perhaps free entry of identical firms, perhaps something else. This last assumption gives us a great deal of power– this is the equilibrium assumption in action. Together, profit maximization and free entry of identical firms gives us the following two sets of conditions (assuming that the production function is continuously differentiable and concave). P fZ Zi Wi for each input marginal revenue equals price. And given these first order conditions: