{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

lect6 - Production and Cost Functions Intermediate...

Info icon This preview shows pages 1–10. Sign up to view the full content.

View Full Document Right Arrow Icon
Production and Cost Functions Intermediate Microeconomics Amy Brown University of California, Los Angeles August 25, 2008 A. Brown (UCLA) Econ 11 Lecture 6 08/25/08 1 / 39
Image of page 1

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

View Full Document Right Arrow Icon
Outline of Lecture 1 Production Functions of Single Output 2 Graphical Representation of Production Function 3 Marginal Rate of Technical Substitution 4 Returns to Scale 5 Production Possibility Frontier 6 Break 7 Cost Minimization This should cover chapters 7-8 in the 9th edition, chapters 9-10 in the 10th edition A. Brown (UCLA) Econ 11 Lecture 6 08/25/08 2 / 39
Image of page 2
Theory of Production and Supply Production of goods and services takes place inside °rms . Microeconomics studies how market prices in°uence production decisions. Characterize ±rm as a process using a given set of inputs to produce other goods as outputs. De±nition A production function describes the production possibilities by determining the output obtainable for given quantities of inputs. A. Brown (UCLA) Econ 11 Lecture 6 08/25/08 3 / 39
Image of page 3

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

View Full Document Right Arrow Icon
Rationality Principle We abstract from the processes of decision-making within a ±rm, assume these are optimal. A ±rm is de±ned by its technology for transforming inputs into outputs. The de±nition reduces the ±rm to a mathematical description. Example Suppose we have a ±rm that makes cars. Then that ±rm makes the single output, "cars," from the two inputs "capital" and "labor." q = f ( k , l ) A. Brown (UCLA) Econ 11 Lecture 6 08/25/08 4 / 39
Image of page 4
Marginal Product of an Input Measures the change in output due to a marginal change in an input. MP k = f ( k , l ) k MP l = f ( k , l ) l Usually assumed to be decreasing in the input. 2 f ( k , l ) k 2 < 0 2 f ( k , l ) l 2 < 0 A. Brown (UCLA) Econ 11 Lecture 6 08/25/08 5 / 39
Image of page 5

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

View Full Document Right Arrow Icon
Isoquant Curves De±nition Isoquant curves represent a production function by its level curves, or the quantities of the inputs that can produce a given level of output. Shape of the isoquants determines the substitutability of inputs in a given production function. A. Brown (UCLA) Econ 11 Lecture 6 08/25/08 6 / 39
Image of page 6
Marginal Rate of Technical Substitution De±nition The marginal rate of technical substitution is the ratio of marginal products of inputs, measuring the slope of the isoquant. MRTS l , k = f ( k , l ) l f ( k . l ) k = MP l MP k Another use of the implicit function theorem. ° dk dl ° ° ° ° f ( k , l )= q = f ( k , l ) l f ( k . l ) k Measures the rate at which inputs can be substituted for each other. A. Brown (UCLA) Econ 11 Lecture 6 08/25/08 7 / 39
Image of page 7

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

View Full Document Right Arrow Icon
Assumption About Marginal Rate of Technical Substitution Assume that MRTS is decreasing. As the ratio of k to l increases, the marginal product of capital decreases relative to the marginal product of labor. Gives us the shape of the isoquant curves. A. Brown (UCLA) Econ 11 Lecture 6 08/25/08 8 / 39
Image of page 8
Elasticity of Substitution De±nition For a production function f ( k , l ) , the elasticity of substitution ( σ ) measures the proportionate change in k l relative to the proportionate change in the MRTS along an isoquant.
Image of page 9

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

View Full Document Right Arrow Icon
Image of page 10
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern