Cost in the Long Run
3 years ago
Microeconomics
**There are only variable costs in long run.
User cost of capital = Annual cost of owning and using a capital asset, equal to economic depreciation plus forgone interest = Economic depreciation + Interest Rate
r = depreciation rate + interest rate
Rental rate – Cost per year of renting one unit of capital.
Isocost line – Graph showing all possible combinations of labor and capital that can be purchased for a given total cost.
C = wL + rK
When a firm minimizes the cost of producing a particular output, the following condition holds:
MPL/w = MPK/r
Expansion path – Curve passing through points of tangency between a firm’s isocost lines and its isoquants.
Bijay Satyal
Dec 1, 2021