lecture9 - technology

lecture9 - technology - Topic 5: Production (1) Production...

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opic 5: Production (1) Topic 5: Production (1) Production technology USC Marshall
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Production decisions • Having analyzed how consumers make their consumption decisions, which shed light on demand curves, we can now look at how firms make their production decisions, which will shed light on supply • The methodology and the toolkit are practically the same, with some additions USC Marshall
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Production decisions Three steps: – Technology and production (chapter 7) • How do we think about production and how do we measure productivity/efficiency – Cost minimization (chapter 8) • How to figure out the cheapest way to produce a given level of output • “utility maximization” – Profit maximization (chapter 9) • Given the cost-minimizing way of producing any vel of output which level of output should the USC Marshall level of output, which level of output should the firm actually produce
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Production decisions • In practice, firms are complex entities, composed of individuals of varying skill, knowledge and agendas, together with the machinery, equipment, land and other inputs used to produce the final outputs. • To simplify the setting, we assume that: – The goal of the firm is to maximize profits – Output is produced using two factors of production : apital K • Capital, K • Labor, L USC Marshall
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Production technology Choice of production method: – In practice, there are many ways of converting a given amount of inputs (K,L) into a final product (output) USC Marshall
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Production technology Example: Assembling garden benches – Noah and Naomi want to start assembling garden benches from pre-cut bench “kits” – They have a 1,000-square foot garage – Assembly involves three steps. Assembling the back is hardest, assembling the frame and and ttaching the back section are easier attaching the back section are easier. – How will the amount of labor translate into output? epends on the choice of production meth • Depends on the choice of production meth USC Marshall
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Production technology • A single worker can assemble 33 benches a week Production method Number of workers Garden benches per eek Efficient? week A1 3 3 Y e s USC Marshall
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Production technology • Two workers can: – (B) work alone, each producing 33 per week – (C) cooperate on back, do rest alone, joint 70/week – (D) cooperate on back, specialize, joint 74/week Production method Number of workers Garden benches per eek Efficient? week A1 3 3 Y e s USC Marshall
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Production technology • Two workers can: – (B) work alone, each producing 33 per week – (C) cooperate on back, do rest alone, joint 70/week – (D) cooperate on back, specialize, joint 74/week Production method Number of workers Garden benches per eek Efficient?
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This note was uploaded on 03/09/2009 for the course BUAD 351 taught by Professor Eastin during the Spring '07 term at USC.

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lecture9 - technology - Topic 5: Production (1) Production...

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