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PRODUCER BEHAVIOR (II) 1 Roadmap Production and technology: one-input case Two-input case: marginal rate of technical substitution Cost function: short run and long run Market supply 2 Outline Production with two variable inputs Marginal rate of technical substitution Returns to scale 3 Outline Production with two variable inputs Marginal rate of technical substitution Returns to scale 4
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Production with multiple inputs In previous lecture, assume K is fixed and focused on F ( K , L ) In the long run, all input levels can be adjusted For simplicity, will focus on two inputs: K and L 5 Production with two variable inputs With more than two inputs, production function cannot be represented in two-dimensional space One solution is to write a table with q for selected values of K , L Example: q = 100 K L K L 1 2 3 4 5 6 1 100 141 173 200 223 244 2 141 200 244 282 316 346 3 173 244 300 346 387 424 4 200 282 346 400 447 489 5 223 316 387 447 500 547 6 244 346 424 489 547 600 6 (values of q rounded to nearest integer) Production with two variable inputs Notice diminishing marginal returns of labor: - fix K = 3 (for example) - vary L from 1 to 6 - increments in q : 71, 56, 46, 41, 37 Note various combinations of ( K , L ) lead to same output level q 7 Isoquants Definition: lines depicting combinations of inputs that yield the same output level Note the similarities between firms’ isoquants and consumers’ indifference curves: - isoquants: combinations of inputs yielding given output level - indifference curves: bundles of goods yielding given utility level 8
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Isoquants
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  • Fall '15
  • ANDREWPAIZIS
  • Microeconomics, Economics of production, Returns to scale

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