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Unformatted text preview: 1. Ch 6 a. Production i. Inputs/Resources 1 1. land – payments to land: rent 2. labor – payment to labor: wages 3. capital – payment to capital: interest rates. tractors/buildings as inputs to production 4. entrepreneurship- payment: profit. risk taker a. what’s left over after all payments are made ii. Black Box 2 1. aka production process 2. however the firm produces, we don’t care iii. Production 3 1. infinite goods and services 2. q1/q2, unlimited wants and needs, but resources are scarce. iv. efficiency 1. the final combination of q1 qn produced in economy, inputs/resources are put to their highest valued use 2. value of consumption goods is highest a. ex. the cost of food has increased world wide, ie price of rice increase 143% in the past 2-3 years. If India exports a lot of rice, if price increases, you’d expect production to go up, but the price of rice in India is high too, so govn’t prohibits export of rice to protect price of rice w/in India from outside competitive buyers. b. Hurts the farmers to try and feed the people, but it devalues the rice land, then less rice is produced. b. Production i. Q= production of some product ii. We reduce our inputs to only 1. Labor aka variable input 2. k = capital aka fixed inputs. 2. NOTE: In SR, labor is variable, capital is fixed. In LR, labor and capital are both variable. i. SR Qsr = f(L, K) 1. MPl= marginal product of labor = deltaQ/deltaL = qn- qo/lo+1 – lo 2. APl- average product of labor = Q/L L Q MPl APl Na Na 1 10 10 10 2 18 8 9 3. ii. LR Qlr = f(L, k) iii. Apk = q/k = average product of capital iv. MPk= delta q/deltak but delta k = 0 bc it’s fixed in the short run,...
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This note was uploaded on 04/11/2009 for the course ARE 100A taught by Professor Constantine during the Spring '08 term at UC Davis.
- Spring '08