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EMG_344-3_AEVA_Lecture-4 - 4 200 283 346 400 447 490 529...

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Click to edit Master subtitle style Production and Technological Change Recommended Texts: Petersen H. C. and Lewis W. C. (1999), Managerial Economics, Prentice hall of India, Delhi Nicholson W.E. (1997), Intermediate Microeconomics and Its Application, The Dryden Press, United States World Development Forum , (various issues), Global Competitiveness Report http://www.gcr.weforum.org/ Ferri F., S Treadwell and M.A. Desai (2005), Understanding Economic Value Added, Harvard Business Publications
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Firms l Combine and process resources to have an output l Goods or Services l Directly or Indirectly satisfy the consumer l Creation of utility l Maximize profits
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Production Functions l Technical relationship between the inputs and outputs l Assuming only two factors of production K,L l Production Function Q = f (K,L) l Cobb Douglas production function Q = AK° Ll If A = 100, ° = 0.5 and L = 0.5 Q = 100K0.5L0.5
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Production Table : Q = 100K0.5L0.5 L K 1 2 3 4 5 6 7 8 1 100 141 173 200 224 245 265 283 2 141 200 245 283 316 346 374 400 3 173 245 300 346 387 424 458 490
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Unformatted text preview: 4 200 283 346 400 447 490 529 565 5 224 316 387 447 500 548 592 632 6 245 346 424 490 548 600 648 693 7 265 374 458 529 592 648 700 748 8 283 400 490 565 632 693 748 800 MPL 83 63 54 47 43 39 36 Short Run Production Function l At least one fixed input l Law of diminishing marginal returns l TP, MPL, APL L Q TP L AP MP Q Stage i Stage ii Stage iii Increasing MP Decreasing MP Negative MP Optimal Employment of Factors of Production l Output of an additional worker = 2 units l Price of output = 20 000 l Thus additional revenue per worker = 40 000 l Additional cost per worker 30 000 l Should we hire the labour? l If wage rate increased to 45 000, should we hire the worker? Optimal Employment of Factors L TP MP TR MRP---1 200 200 400 400 2 283 83 566 166 3 346 63 692 126 4 400 54 800 108 5 447 47 894 94 6 490 43 980 86 7 529 39 1058 78 Marginal Revenue Product (MRP) MRPL = MPL x P (MR in pure competition) P = 2 W = 100...
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