Ch06 - Chapter6 TheTechnologyofProduction 1...

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1 Chapter 6 The Technology of Production
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2 Topics to be Discussed Isoquants Production with One Variable Input  Production with Two Variable Inputs Returns to Scale
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3 6.1 The Production Function 1. The Production Function Describe how  inputs  can be transformed into  outputs Inputs: land, labour, capital and raw materials Outputs: cars, desks, books, etc.  Technological constraint All inputs & outputs are flow variables Firms can produce different amounts of output (q)  using different combinations of inputs
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4 The Production Function Considering only labour (L) and capital (K)  q  = F(K,L) Assumes the firm operates efficiently Assumes a given technology
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5 Production: Two Variable Inputs
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6 Production: Two Variable Inputs Isoquants Curves showing all possible (L,K) combinations just  sufficient to produce a given amount of output
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7 Isoquant Map Labour per year 1 2 3 4 5 Ex: 55 units of output can be produced with 3K & 1L (pt. A) OR 1K & 3L (pt. D) q 1 = 55 q 2 = 75 q 3 = 90 1 2 3 4 5 Capital per year D A B C
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8 Production: Two Variable Inputs Isoquants are normally drawn to reflect ∂q/∂L > 0  and ∂q/∂K > 0 Often we assume convex technology The map is cardinal Input flexibility One input can be substituted for another Short run versus long run Time period in which at  least one input is fixed (usually capital) All inputs variable
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9 Production: Two Variable Inputs Three examples of technology 1) Fixed-proportions } Extreme 2) Perfect substitutes }   cases 3) Cobb-Douglas –  simplest well-behaved case
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10 Fixed-Proportions:  q = min(L,K) L K L 1 K 1 Q 1 A Q 2 Q 3 B C One worker: one machine
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This note was uploaded on 09/25/2010 for the course ECON Econ 2296 taught by Professor W.graygiovannetti during the Fall '10 term at Langara.

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Ch06 - Chapter6 TheTechnologyofProduction 1...

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