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# Chapter18 - (b convex averages produce more than extremes 6...

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Chapter 18 - Technology 1. Need a way to describe the technological constraints facing a firm (a) what patterns of inputs and outputs are feasible? 2. Inputs (a) factors of production (b) classifications: labor, land, raw materials, capital (c) usually try to measure in flows (d) financial capital vs. physical capital 3. Describing technological constraints (a) production set - combinations of inputs and outputs that are feasible pat- terns of production (b) production function - upper boundary of production set (c) see figure 18.1. in the textbook (d) isoquants - all combinations of inputs that produce a constant level of output (e) isoquants (constant output) are just like indifference curves (constant utility) 4. Examples of isoquants (a) fixed proportions: one man, one shovel (b) perfect substitutes: pencils (c) Cobb-Douglas: y = Ax a 1 x b 2 (d) can’t take monotonic transformations any more! 5. Well-behaved technologies (a) monotonic - more inputs produce more output

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Unformatted text preview: (b) convex - averages produce more than extremes 6. Marginal product (a) MP 1 is how much extra output you get from increasing the input of good 1, holding good 2 Fxed (b) MP 1 = ∂f ( x 1 ,x 2 ) /∂x 1 7. Technical rate of substitution 1 (a) like the marginal rate of substitution (b) given by the ratio of marginal products (c) TRS = dx 2 dx 1 =-∂f/x 1 ∂f/x 2 8. Diminishing marginal product (a) more and more of a single input produces more output, but at a decreasing rate (see Fgure 18.5. in the textbook) (b) law of diminishing returns 9. Diminishing technical rate of substitution (a) equivalent to convexity (b) note di±erence between diminishing MP and diminishing TRS 10. Long run and short run (a) all factors varied -long run (b) some factors Fxed -short run 11. Returns to scale (a) constant returns - baseline case (b) increasing returns (c) decreasing returns 2...
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Chapter18 - (b convex averages produce more than extremes 6...

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