10-Production (II)

10-Production (II) - 9/27/2010 Agenda Course Overview The...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
9/27/2010 1 Agenda Course Overview The Costs of Production Average and Marginal Costs Short run vs. Long run Costs Productivity Differences Innovation and Technological Change What To Take Away Microeconomics The Structure of the Course Consumers and Producers Market Interaction Today’s lecture Uncertainty Perfect competition Monopoly and Pricing strategies Competitive Strategy Auctions Information in Markets and Agency Game Theory Introduction to Markets Consumer Theory and Demand Technology and Production
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
9/27/2010 2 Agenda Course Overview The Costs of Production Average and Marginal Costs Short run vs. Long run Costs Productivity Differences Innovation and Technological Change What To Take Away From Production Technology and Input Prices to the Cost of Production Our goal is to understand what is the way to produce a given level of output incurring in the minimum expenditure possible. Note that there are different combinations of capital and labor that may generate the same level of output. However for each combination we must incur a different expenditure. The total cost of production for a given level of output Q, represented by C(Q) is the minimum expenditure necessary to produce Q units of output. Therefore, to find the total cost of production for a given output level Q we need to find to solve an optimization problem: minimize total expenditure under the condition that you produce at least Q. We will now look at specific examples to derive from the production technology and input prices the costs of production and the optimal input mix for each scale of production.
Background image of page 2
9/27/2010 3 Optimal Production Plan Suppose that the production technology of a firm is given by With input prices w for labor and r for capital. What is the Marginal Rate of Technical Substitution? 1/2 1/2 q K L Optimal Production Plan What is the relation between capital and labor under an optimal production plan? If we want to produce q units of output, what is the expenditure minimizing mix of capital and labor required?
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
9/27/2010 4 Optimal Production Plan What are the costs of producing q units? The Costs of Production Does the technology exhibit increasing, decreasing or constant returns to scale? Does production exhibit economies or diseconomies of scale?
Background image of page 4
9/27/2010 5 Change in Input Mix with Changes in Input Prices In our previous example, how do the costs of production react to changes in the price of capital r ? And with changes in the wage w ? Perfect Substitutes Suppose that the production technology is What are the costs of production in this case? 23 q K L 
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
9/27/2010 6 Perfect Substitutes We can show that with perfect substitutes you will only use the input that is comparatively cheaper.
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/30/2010 for the course ECON 251 taught by Professor Tontz during the Fall '10 term at USC.

Page1 / 19

10-Production (II) - 9/27/2010 Agenda Course Overview The...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online