Ch06_spr09_pam2000 - PAM 2000 Intermediate Microeconomics...

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PAM 2000 Intermediate Microeconomics A. Sinan Ünür Inputs and Production Inputs and Production Functions Functions Chapter 6
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Production Function and Inputs We’ll mostly use production functions with two inputs: Labor (L) and Capital (K). Q = F(K, L) e.g. F(K, L) = 3KL F(K, L) = min{ 2K, 3L } F(K, L) = 7.5 K + 9.1 L What is Capital?
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Chapter 6 PAM 2000 – A. Sinan Ünür Long Run vs. Short Run Long Run: The shortest period of time required to alter the amounts of all inputs used in a production process Short Run: The longest period of time during which at least one of the inputs used in a production process is fixed. Variable Input: An input that can be varied in the short run. Fixed Input: An input that cannot vary in the short run.
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Chapter 6 PAM 2000 – A. Sinan Ünür Marginal Product The marginal product of an input is the change in output due to a 1 unit change in the level of that input while keeping all other inputs and technology constant MP of L = (change in Q)/(change in L) Keeping K and the production function constant MP of K = (change in Q)/(change in K) Keeping L and the production function constant
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Chapter 6 PAM 2000 – A. Sinan Ünür Average Product The average product of an input is the total output divided by the level of that input Keeping the level of the other input and the production function constant AP of L = Q/L AP of K = Q/K
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Chapter 6 PAM 2000 – A. Sinan Ünür Short Run Production Function Given a production function of the form Q = F(K, L), we
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Ch06_spr09_pam2000 - PAM 2000 Intermediate Microeconomics...

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