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Lecture16 - Announcements HW6 is due the Monday after break...

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Announcements HW6 is due the Monday after break. There IS class on Friday. 1 of 31
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THE BEHAVIOR OF PROFIT-MAXIMIZING FIRMS Recall the three decisions a firm has to make: 1. How much 2. Which production 3. How much of output to supply technology to use each input to demand The Three Decisions That All Firms Must Make 2 of 33
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Alternative Technologies There are many ways to produce the same level of output using different combinations of capital equipment and labor. Example: There are multiple ways to get your car washed: the automated car washes (very K intensive), OR, you could get it washed by a bunch of 14 year olds at a charity car wash (very labor ) h h h d b h intensive). Either way the car gets washed, but there are different amounts of capital and labor employed. What determines how these inputs will be used to make a particular product? Normally the relative cost of each input. 3 of 33
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Textbooks Example: Suppose there are 2 ways to produce 10,000 Economics Textbooks: Method 1: 1 Computerized Press, 1 operator Method 2: 100 Manual Presses, 100 Operators The job of the engineer is to provide these options to management. The engineer cannot choose which method to use…that’s t’ j b H ld t management’s job. How would management decide? Management would need to examine the market generated prices for each input. the market generated prices for each input. 4 of 33
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