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Lecture 5 - • After change it moves to 50,000(200/4...

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Lecture 5 2/7/08 BMW Case Study Choosing the production mix Assume: Market research finds Qd suv = 1200 - (4/100)*P Qd RDST = 800 - (4/200)*P BMW Resources = X t = 1600 W x = 10,000$ BMW managers determine production relationship: Y = (1/2) * X - Y/ X = (-roadster/ SUV)=Tradeoff O.C HVA BMW Suv Market P=30,000-(100/4) Q.D. =D/MB (line from 30,000 on X to 1200 on Y) Y suv = (1/2) * X It takes 2 workers to make a car. Costing 20,000 a month. P 1 * = 20,000 = s/mc (constant line). So if you connect the demand and the S/MC you will see that there will be a benefit up to where they meet. Economic efficiency is making things that are worth then they actually cost. BMW Roadster Market D/MB 40,000 on X down to 800 on Y Production function: Y suv = (1/2) * X down from 0 to right Current production Choice 1 st theorem of Welfare Economics Markets => firm competition and voluntary exchange
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Unformatted text preview: • After change it moves to 50,000 - (200/4) Q.D. (line from 50,000 to about 700) • What If Analysis • Assume gas prices double • Market research finds demand changes • QD SUV = 1000 - (4/100)*P (demand went down) • QD RDST = 1000 - (4/200)*P (demand went up) • Declining Marginal Products and Increasing Opportunity Costs • Good A initial position is at 0, and Good B initial is at (4,4). If you want to add a worker to good A you add a worker and find MP of X 1 . If you take one away from B then you find OC of 1 st A unit. In order tog et up to 2 units for good A you need 2 more units to make one more car. In order to make the second car you needed to give a lot up of B. Mc = products used up. OC = Give up products (trade offs). • Economic Growth: The ability of the economy to produce increasing quantities of goods and services....
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