E303lect27F09

# E303lect27F09 - 28 October 2009 Lecture 27 Reading: Ch. 5....

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28 October 2009 Lecture 27 Reading: Ch. 5. Problem Set #9 Posted, Due Monday REVIEW___________________________________________________: IV. Chapter 5. The Production Process and Costs A. Introduction: 1. Overview. 2. The Role of the Manager in the Production Process. B. The Production Function. 1 . Short Run Decisions. Q = F(K*,L) We introduced terms with the following table K* L L Q = TP Q/ P = MP L Q/L = AP L 2 0 - 0 - - 2 1 1 4 4 4 2 2 1 10 6 5 2 3 1 18 8 6 2 4 1 24 6 6 2 5 1 28 4 5.6 2 6 1 30 2 5 2 7 1 30 0 4.29 2 8 1 28 -2 3.5 We defined the following terms Total Product : (TP) Average Product (AP) AP L = Q/L Marginal Product (MP) MP L = Q/ L PREVIEW___________________________________________________ a. Measures of Productivity (continued) b. Relationships between Productivity Measures. MP = 0 implies TP is maximized MP drives AP c. Optimal Use of a Single Input. i. VMP ii. Rule iii. Comparative Static d. Optimal use of multiple inputs. LECTURE_________________________________________________ a. Measures of Productivity (continued) Now let’s consider some relations between the measures. We start with an observation. 1

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Observation: Diminishing Marginal Productivity : As is the case in much of economic analysis, marginal decisions play a pivotal role in production analysis. In the table, notice that MP first increases, then decreases. This is a very typical pattern, and reflects
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## E303lect27F09 - 28 October 2009 Lecture 27 Reading: Ch. 5....

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