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Unformatted text preview: EC 1 UCLA Dr. Bresnock Lecture 7 Production Theory Basically we begin with a simple production relationship/function : Q = f(N) where Q = Output N = Input (i.e. Labor, Land, Capital, etc.) How are Q and N related? Let’s use L = Labor Input to keep things simple. Do you expect Q to increase as L increases? In other words, if more workers are hired, do you expect output to increase? The simple relationship between Q and L is usually direct, or positive. That is… If L ↑ s then Q ↑ s If L ↓ s then Q ↓ s But the exact relationship may have 3 theoretical, functional forms or shapes… Three Theoretical Production Forms Let L = number of units of Labor Input Q = number of units of Product or Output TP = Q = Total Product or Total Output AP = TP/L = Q/L = Average Product or Average Output (ex. output per worker) MP = Δ TP/ Δ L = Δ Q/ Δ L = Marginal Product or Marginal Output = the additional output per an additional unit of input (ex. the additional output per an additional worker) = the slope of the TP . 1) Linear-- demonstrates constant marginal returns , that is, as additional units of input are added to the production process, each additional unit of input adds an equal amount to the number of units of output/product produced. EC 1...
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This note was uploaded on 05/20/2010 for the course ECON 180-004-20 taught by Professor Bresnock during the Winter '09 term at UCLA.
- Winter '09