Intermediate Microeconomics Ch18 notes

Intermediate Microeconomics Ch18 notes - Ch 18. Technology...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Ch 18. Technology This chapter begins the study of firm behavior by considering the technological constraint imposed by Nature on a firm, that is, there are only certain feasible ways to produce outputs from inputs. Production theory is easier than consumer theory since production processes are observable and the same tools as before will be used now. 18.1 Concepts of Production A firm employs inputs (or factors of production , such as land, labor, capital, and raw materials) to produce output (some good for sale). Capital goods are used as the inputs that are themselves produced goods, and financial capital is the money used to start up or maintain a business. Technology can be described without reference to the kind of inputs or output, but just with their amounts . Also, inputs and outputs are measured in flow units. The set of all combinations of inputs and outputs that are technological feasible is called a production set (PS). E.g., a firm uses one input x to produce one output y. Point ( x, y ) is in the PS in the sense that this combination is a possible technological choice. The production function (PF) measures the maximum possible output that can be obtained from a given amount of input, and so this function, y = f(x), describes the boundary of the PS as shown in figure 18.1 A. x 2 x 1 an isoquant with f(x 1 , x 2 ) = y o
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Usually, a firm needs to use several inputs to produce one output. E.g., two inputs, x 1 units of factor 1 and x 2 units of factor 2, are employed to get the maximum amount of output y under the PF: y = f(x 1 , x 2 ). An isoquant is the set of all possible combinations of inputs 1 and 2 that are just sufficient to produce a given amount of output, as shown in figure 18.1 B. An isoquant is similar to an IC . 18.2 Examples of Technology (1) Fixed-proportion tech E.g., There is assumed to be an only way to produce a hole: one man with one shovel.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/05/2009 for the course ECIF ECIF201 taught by Professor Gu during the Spring '09 term at University of Manchester.

Page1 / 6

Intermediate Microeconomics Ch18 notes - Ch 18. Technology...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online