Chapter 18 20 - Production vs. Consumption Similar to...

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Unformatted text preview: Production vs. Consumption Similar to consumers producers purchase their inputs and sell their outputs and take the prices for those as given Producers maximise profits consumers maximise utility. The notion of income for producers is moot. Production vs. Consumption Given the input/output prices a producer needs to decide how much output to produce and how to do this is in the most efficient way. How much to consume was never a problem a consumer will spend all his income; the question was only how to spend it in the most efficient way. Thus producer faces more elaborate choice problem. We start with the second part first answer the question how to produce any given level of output in the most efficient way. Then we decide how much output to produce. Chapter Eighteen Technology Technologies A technology is a process by which inputs are converted to an output. E.g. labor, a computer, a projector, electricity, and software are being combined to produce this lecture. Technologies Usually several technologies will produce the same product -- a blackboard and chalk can be used instead of a computer and a projector. Which technology is best? How do we compare technologies? Example Producing a lathe (turning machine) U.S. assembly line production India workers actually carry the lathe along a production line. Input Bundles x i denotes the amount used of input i; i.e. the level of input i. An input bundle is a vector of the input levels; (x 1 , x 2 ). E.g. (x 1 , x 2 ) = (6, 9). Production Functions y denotes the output level. The technologys production function states the maximum amount of output possible from an input bundle. y f x x n = ( , , ) 1 Production Functions y = f(x) is the production function. x x Input Level Output Level y y = f(x) is the maximal output level obtainable from x input units. One input, one output Technology Sets A production plan is an input bundle and an output level; (x 1 , , x n , y). A production plan is feasible if The collection of all feasible production plans is the technology set. y f x x n ( , , ) 1 Technology Sets y = f(x) is the production function. x x Input Level Output Level y y y = f(x) is the maximal output level obtainable from x input units. One input, one output y < f(x) is an output level that is feasible from x input units. Technology Sets x x Input Level Output Level y One input, one output The technology set Technology Sets x x Input Level Output Level y One input, one output y The technology set Technically inefficient plans Technically efficient plans Technologies with Many Inputs What does a technology look like when there is more than one input?...
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Chapter 18 20 - Production vs. Consumption Similar to...

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