6 Production

# 6 Production - 6 PRODUCTION Econ 100A Mortimer 1 Production...

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PRODUCTION 6 Econ 100A Mortimer 9/17/2009 1

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Production The Production Decisions of a Firm The production decisions of firms are analogous to the purchasing decisions of consumers: 1. Production Technology 2. Cost Constraints 3. Input Choices Econ 100A Mortimer 9/17/2009 2
THE TECHNOLOGY OF PRODUCTION The Production Function Inputs and outputs are flows (e.g., per year) The function is specified for a given technology. Function showing the highest output that a firm can produce for every specified combination of inputs(e.g., labor, capital, and materials). . Econ 100A Mortimer q L q=F(L) Not feasible Technically efficient Technically inefficient 9/17/2009 3 Q = F(K,L)

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THE TECHNOLOGY OF PRODUCTION The Short Run versus the Long Run short run Period of time in which quantities of one or more production factors cannot be changed. (e.g., labor may be variable but a plant or machinery may be fixed input) long run Amount of time needed to make all production inputs variable. Econ 100A Mortimer 9/17/2009 4
PRODUCTION WITH ONE VARIABLE INPUT (LABOR) Total Production Functions Econ 100A Mortimer increasing marginal returns to labor O utput rises with additional labor at an increasing rate. diminishing marginal returns to labor O utput rises with additional labor at a decreasing rate. diminishing total returns to labor L Q 0 0 6 30 12 96 18 162 24 192 30 150 q L 12 24 36 Single-input production functions 9/17/2009 5 q = L 2 -L 3 /36

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PRODUCTION WITH ONE VARIABLE INPUT (LABOR) Average and Marginal Products Econ 100A Mortimer average product Output per unit of a particular input. AP L = marginal product Additional output produced as an input is increased by one unit. MP
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6 Production - 6 PRODUCTION Econ 100A Mortimer 1 Production...

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