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9-23-10

# 9-23-10 - •S15oIso-plotWhats constant along...

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Unformatted text preview: 9-23-10•S15oIso-plotWhats constant along isoplot•Output or production•S16oIsoplot is just a straight lineoPerfect substitutes•S17oPerfect ComplimentsoL-shaped/right angle isoplots•S18oProductivity of inputsoMarginal and Average Products of LaborTableL: between 0-7 unitsK: keep capital constantQ: output varies as change laborAverage Product of Labor: output/laborMarginal product of labor: dQ/dL --- how much output is added with an increase of one unit of labor•S19oMPLHow much output changes with small change of laborPartial deriviative of production function with respect to L, holding K fixedoMPKSmall change in capital holding labor constant how much does output changePartial derivative of production function F(K,L) with respect to LoAssume MPL & MPK > 0oMPs are important for selecting optimal L and K•S20oMarginal Product ExampleSee recording book and slides•S21oQ = min(3L, 2K) oQ = 4 L=2 K=2oMPL = 0 so additional unit of L with no additional K does no goodoMPK = 2Another unit of K increases the Q to 6•S22oLaw of Diminishing Marginal Returns:oEventually marginal product of every input declinesoMPL or MPK eventually fallsDoesn’t mean that it must become negativeAlso it’s not the case that later L are lower quality than initial LoExample:See slides and recording book•S23oAverage Product of LaborLabor productivity – international comparisons of productivity use this...
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9-23-10 - •S15oIso-plotWhats constant along...

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