Chapter18 - (b) convex - averages produce more than...

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Chapter 18 - Technology 1. Need a way to describe the technological constraints facing a Frm (a) what patterns of inputs and outputs are feasible? 2. Inputs (a) factors of production (b) classiFcations: labor, land, raw materials, capital (c) usually try to measure in ±ows (d) Fnancial 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 Fgure 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 indi²erence curves (constant utility) 4. Examples of isoquants (a) Fxed 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 dierence 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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This note was uploaded on 12/09/2010 for the course ECON 206 taught by Professor Ioanadan during the Summer '10 term at University of Toronto- Toronto.

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Chapter18 - (b) convex - averages produce more than...

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