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Chp11- output and costs

Chp11- output and costs - Chapter11...

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11-1 Chapter 11 Production, Output and Costs Objective of Firms: maximum attainable profit Need to distinguish between two time frames: o Short Run o Long Run Short Run vs Long Run 
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11-2 o Discuss
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11-3 Technological Constraints in the Short Run o Total product o Marginal product o Average product
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11-4 Technological Constraints in the Short Run o In the short run, a firm can only vary output by changing  the quantity of its variable inputs o The relationship between output and quantity of  labour employed can be described by the following related  concepts: o Total product o Marginal product o Average product
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11-5 Total Product (TP): Table 1:  Total Product
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11-6 o See Diagram 1:  Total Product 
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11-7 Total Product (TP): Total output that can be produced with: o Given quantity of fixed inputs o Varying quantities of variable inputs Table 1:  Total Product Labour Total Product 0 0 1 1 2 3 3 6 4 12 5 17 6 20 7 22 8 23
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11-8 o See Diagram 1:  Total Product 
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0 2 4 6 8 10 12 14 16 18 20 22 24 26 0 1 2 3 4 5 6 7 8 9 Labour TP 11-9 Diagram 1:  Total Product
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0 2 4 6 8 10 12 14 16 18 20 22 24 26 0 1 2 3 4 5 6 7 8 9 Labour TP 11-10 Diagram 1:  Total Product
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11-11 Marginal Product Table 2:  Marginal Product Labour Total Product MP =  TP/ L
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11-12 o See Diagram 2:  Marginal Product 
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11-13 Marginal Product o The change in total product that results from a  1-unit increase in the quantity of labour employed o Change in total product   o ÷    o Change in the quantity of labour o MP = TP/ L Table 2:  Marginal Product Labour Total Product MP =  TP/ L 0 0 1 1 1 2 3 2 3 6 3 4 12 6 5 17 5 6 20 3
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11-14 7 22 2 8 23 1 o See Diagram 2:  Marginal Product 
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11-15 Diagram 2:  Marginal Product
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11-16 0 1 2 3 4 5 6 7 0 1 2 3 4 5 6 7 8 Labour MP
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1 3 6 5 3 2 1 2 0 1 2 3 4 5 6 7 0 1 2 3 4 5 6 7 8 Labour MP 11-17 Diagram 2:  Marginal Product 
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11-18 Law of Diminishing Returns
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11-19
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11-20 The Law of Diminishing Returns o As a firm uses more and more of a variable input, with a  given quantity of fixed inputs, the marginal product of the  variable input eventually decreases
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