He joined Google hal varian microeconomic analysis pdf 2002 as a consultant, and has worked on the design of advertising auctions, econometrics, finance, corporate strategy, and public policy. University of California, Berkeley in 1973.
Varian is married and has one child, Christopher Max Varian. This page was last edited on 28 December 2017, at 21:03. Each line segment is an isocost line representing one particular level of total input costs, denoted TC in the graph and C in the article’s text. K is the amount of capital used, L is the amount of labour used, and C is the total cost of acquiring those quantities of the two inputs. The absolute value of the slope of the isocost line, with capital plotted vertically and labour plotted horizontally, equals the ratio of unit costs of labour and capital. Specifically, the point of tangency between any isoquant and an isocost line gives the lowest-cost combination of inputs that can produce the level of output associated with that isoquant. Equivalently, it gives the maximum level of output that can be produced for a given total cost of inputs.
We know that the MRTS is equal to the ratio of the marginal products of the two inputs. So the condition that the MRTS be equal to the input cost ratio is equivalent to the condition that the marginal product per dollar is equal for the two inputs. This condition makes sense: at a particular input combination, if an extra dollar spent on input 1 yields more output than an extra dollar spent on input 2, then more of input 1 should be used and less of input 2, and so that input combination cannot be optimal. Only if a dollar spent on each input is equally productive is the input bundle optimal. This page was last edited on 20 November 2017, at 21:26. Check if you have access through your login credentials or your institution.
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