section8_1 - Department of Economics University of...

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Unformatted text preview: Department of Economics University of California, Berkeley ECON 100A Spring 2010- Section 8 GSI: Antonio Rosato Production We now turn to describing the supply side of the market. In demand analysis we relied on consumer behavior theory, and here we will rely on the theory of the firm . Production functions The production function describes the technology that converts inputs to outputs. Inputs are also called factors of production. To make things simple, we will restrict our analysis to two inputs: capital K and labor L . The general equation for a production function is q = F ( K,L ) This is very much like the utility function, with at least one important distinction: here the quantities are cardinal , unlike utility that was only an ordinal measure. As with the utility function, where the same utility could be achieved by different bundles, here the same output can be achieved with different combinations of inputs. In production, the distinction between short run and long run is important: we assume that at the short run, at least for one of the inputs, its quantity cannot be changed. In the long run, the firm can change the amounts of all inputs. So how much time do we mean by long run? The time it takes to change the levels of all inputs....
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This note was uploaded on 03/18/2010 for the course ECON 100A taught by Professor Woroch during the Spring '08 term at University of California, Berkeley.

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section8_1 - Department of Economics University of...

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