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chap9_302-sp10

# chap9_302-sp10 - Chapter 9 Production 1 What is production...

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1 Chapter 9 Production

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2 What is production? Production   is a process that transforms inputs  (factors of production) into outputs. Output is something that produces present or future  utility. Production  is  any activity that creates present or future  utility. Act of telling joke constitutes production. Although once  a joke is told, it leaves no more tangible trace than a  pleasant memory.
3 The input-output relationship, or production function A   production function   is the  relationship by which inputs are  combined to produce output. Mathematical equation :  Consider  a production process that employs  two inputs, capital (K) and labor  (L), to produce (Q). The  relationship between K, L and Q  may be expressed as: ) , ( L K F Q =

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4 Example Consider the production  function: Where,  K:  equipment-hours per week  and  L:  person-hours per week KL L K F Q 2 ) , ( = = 50 40 30 20 10 5 40 32 24 16 8 4 30 24 18 12 6 3 20 16 12 8 4 2 10 8 6 4 2 1 Capital (equipment hours/wk ) 5 4 3 2 1 Labor (person-hours/wk)
5 Intermediate products Capital and labor by themselves are  insufficient to produce output. Intermediate products:   Products that are  transformed by a production process into  products of greater value. For the sake of simplicity, we will ignore  the complication of intermediate goods in  the examples we discuss.

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6 Value added The  output  is the  value added  to the raw  materials. For example, if a chef and her equipment  transformed \$50 worth of raw material into meals  with a total value of \$150, the resulting output is  the \$100 value added.
7 Long run:  the  shortest  period of time required to alter the  amounts of  all  inputs used in a production process. Short run:

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chap9_302-sp10 - Chapter 9 Production 1 What is production...

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