E303lect29F09 - Lecture 29 2 November 2009 Reading Ch 5 pp...

2 November 2009
Lecture 29 Reading: Ch. 5, pp. 177-185
Collect Problem Set #9
HW Problem Set #10. Due Friday
(probably)
REVIEW___________________________________________________:
IV. Chapter 5. The Production Process and Costs
B. The Production Function.
1 . Short Run Production.
c. Optimal Use of a Single Input.
VMP = MRP = MP
L
P
Q
= P
L
ii. Comparative Statics
3. Long Run Production
a. Optimal Use of Multiple inputs
MP
L
/P
L
= MP
K
/P
K
PREVIEW___________________________________________________
C. Costs.
1. The relationship of production functions to cost functions.
2. Short run costs.
a. Cost curves
1. TC, TVC and TFC
2. MC, AVC and ATC
b. The production decision for a firm: Produce Q where MR=MC.
LECTURE_______________________________________________________
C. Costs and the Theory of the Firm
1. The Relationship of Production Functions to Cost Functions. To provide some context
for this discussion, consider the problem of producing blueberry tarts in my house. We
may have the following relationship.
(a)
Inputs:
(Number of Workers)
(b)
Output
(Number of
Blueberry Pies)
(c)
Marginal
Pies
(d)
Marginal Costs Per pie (Assume
that labor costs $20 per unit, and
that ingredients are free)
0 0
1 5 5 $20/5 =$4
2 15 10 $20/10=$2
3 23 8 $20/8 = $2.5
4 29 6 $20/6 = 3.33
5 33 4 $20/5 =$5