Econ 4010 Lecture 12

Econ 4010 Lecture 12 - <Lecture 12> 6. Production Q1....

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<Lecture 12> 6. Production Q1. Isoquants can be convex, linear, or L-shaped. What does each of these shapes tell you about the nature of the production function? What does each of these shapes tell you about the MRTS? Convex isoquants imply that within some range, some number of units of one input can be substituted for a unit of the other input, and output can be maintained at the same level. In this case, the MRTS is diminishing as we move down along the isoquant. Linear isoquants imply that the slope, or the MRTS, is constant. This means that the same number of units of one input can always be exchanged for a unit of the other input and output can be maintained. In this case, the inputs are perfect substitutes. L-shaped isoquants imply that the inputs are perfect complements, or that the firm is producing under a fixed proportions type of technology. In this case the firm cannot give up one input in exchange for the other input and still maintain the same level of output. Perfect Substitutes & Perfect Complements (p.204) Substitutes: Musical instruments can be manufactured almost entirely with machine tools or with very few tools and highly skilled labor. 1
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Complements: In the reconstruction of concrete sidewalks using jackhammers, it takes one person to use a jackhammer – neither two people and one jackhammer nor one person and two jackhammers will increase production. Q2. The marginal product of labor in the production of computer chips is 50 chips per hour. The marginal rate of technical substitution of hours of labor for hours of machine-capital is 1/4. What is the marginal product of capital? MRTS is defined at the ratio of the two marginal products. To determine the marginal product of capital, substitute the given value for the marginal product of labor and the marginal rate of technical substitution into the following formula: MRTS = MP L / MP K = 1/4 = 50/MP K
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Econ 4010 Lecture 12 - &lt;Lecture 12&gt; 6. Production Q1....

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