econ111_lecture5

# econ111_lecture5 - Econ 111 Microeconomics Spring 2009...

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1 Econ 111 Microeconomics Spring 2009 Lecture 5 (Chapter 6: Production) Heiwai Tang

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2 Agenda The Technology of Production Average (AP), marginal product (MP) Relationship between AP and MP The law of diminishing marginal returns Production with One Variable Input (Labor) Production with Two Variable Inputs Returns to Scale
3 Similarity between production and consumption decisions The production decisions of firms are analogous to the purchasing decisions of consumers, and can likewise be understood in three steps: Production Technology (like Utility) Cost Constraints (like Budge Constraint) Input Choices (like Consumption Choices)

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4 Production Function Production function: the amount of output (q) that a firm can produce for every possible combination of inputs. For simplicity, we only consider two inputs: labor (L) and capital (K). Therefore, production function is Q=f(K,L) Time frame: In the short run , the amounts of some inputs cannot be changed. In the long run , the amount of every input can be changed.
5 Example: Production with One Variable Input (Labor) 0 10 0 1 10 10 10 10 2 10 30 15 20 3 10 60 20 30 4 10 80 20 20 5 10 95 19 15 6 10 108 18 13 7 10 112 16 4 8 10 112 14 0 9 10 108 12 4 10 10 100 10 8 Amount of Labor ( L ) Amount of Capital ( K ) Total Output ( q ) Average Product ( q/L ) Marginal Product ( q/ L )

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6 Average and Marginal Products
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## This note was uploaded on 10/11/2009 for the course ACCT 101+ acct 101+ taught by Professor Various during the Fall '09 term at HKUST.

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econ111_lecture5 - Econ 111 Microeconomics Spring 2009...

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