Chap12 - Krugman and Wells Chapter 12 Steven J. Haider...

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Krugman Krugman and Wells and Wells Chapter 12 Chapter 12 Steven J. Haider EC201 Spring 2010
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EC201-12-p2 Overview Overview Chapters 3-7 : laid out the basics of the competitive model, including the supply and demand curve Chapter 10: digs into the demand curve (a little) more This chapter: starts really digging into the supply curve The production function and product curves (total and marginal) Cost curves (total, fixed, variable, marginal, averages) Short run vs. long run I skip the details behind the demand curve in part because we really dig into the details of the supply curve. The details for the supply curve are a little easier to understand (profits vs. utility), although the ideas are very similar
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EC201-12-p3 Airplanes 201, Inc. Airplanes 201, Inc. Steps in production Produce in factory Label (Airplanes 201, Inc) Fly to quality control “hanger” Production “day”: 90 seconds 5 4 3 2 1 0 Total Airplanes Labor
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EC201-12-p4 Airplanes 201, Inc. to EC201 Airplanes 201, Inc. to EC201 Factors of production/inputs Fixed : factory and safety equipment Variable : labor, paper, ink Output (Q) : airplanes Production function Relationship between inputs and outputs—given in table Total Product (TP) : total airplanes Marginal Product (MP) : additional airplanes for each unit of labor 5 4 3 2 1 0 Marginal Product Total Product Labor
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Production Production Definitions to begin the chapter Production function, fixed input, variable input, total product, marginal product, output… We’ve defined most of them already Time horizon Long run : the time period in which all factors are variable Factor usually most fixed: the building/capital/land Short run : the time period in which at least one input is fixed Diminishing marginal returns to an input The situation when the increase of one input (holding everything else constant) leads to a decline in the marginal product of that input In other words, the region where the marginal product is decreasing We expect this to be the usual case : use best resources first, “congestion”, etc. Relevant for Airplanes 201, Inc?
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Chap12 - Krugman and Wells Chapter 12 Steven J. Haider...

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