10-Production in SR

10-Production in SR - Production: Production Technology...

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1 Production: Production Technology Short-Run Production Reading: Chapter 6
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2 Production Decisions of a Firm 1. Production Technology: describes how factors of production can be transformed into outputs 1. Cost Constraints: firms must consider prices of labor, capital and other inputs 1. Input Choices: given factor prices and production technology, the firm must choose how much of each factor to use in producing output
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3 Production Technology Production Function: Indicates the highest output ( q ) that a firm can produce for every specified combination of inputs. Shows what is technically feasible when the firm operates efficiently Production Efficiency: Given existing technology, the current level of output cannot be produced with fewer inputs
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4 Production Technology Production function for two inputs: q = F(K,L) Production function is specified for a given technology If technology improves, more output can be produced for a given level of inputs Production function includes only efficient production processes Shows only maximum amount of output that can be produced from given levels of L and K
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10-Production in SR - Production: Production Technology...

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