Chapter 10 – Costs.
     Goals:
        + Understand various concepts of costs.
        + Distinguish between short run and long run 
        cost.
         General Concept.
           Fixed Cost: the cost that does not vary 
           with the level of output in the short run.
            ◦ FC = rK0
           Variable Cost: the cost that varies with 
           the level of output in the short run.
            ◦ VC  = wL
                Q1    1
           Total Cost: the cost of all the factors of 
           production employed.
            ◦ TC  = FC + VC  = rK + wL
                Q1         Q1    0     1
       General Concept
        Example: 
        ◦ Production function Q=3KL.
        ◦ Shortrun K=4, r=2 and w=24
        ◦ Derive and graph TC, VC and FC?
                                                                                                     Chapter 10 page 5
                                                                                             Chapter BJ notes page 1 
                                     The Isocost Function 
             
            The production function summarizes the technological 
            options facing the firm.  Unfortunately it is not enough to be 
            just aware of these options when making the output and factor 
            input decision. 
             
            ¾The price
                                of a factor of production is extremely important 
            in this decision. 
             
            ¾In order to minimize costs and produce efficiently, the firm 
            must know exactly what its costs will be.