chp6 - ECON 300B Lei Intermediate Microeconomics Winter...

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Unformatted text preview: ECON 300B Lei Intermediate Microeconomics Winter 2011 1 Chapter 6 Chapter 6 Chapter 6 Chapter 6 Firms and Production Firms and Production Firms and Production Firms and Production Assumptions about firms Assumptions about firms Assumptions about firms Assumptions about firms i. The owner(s) make all decisions. ii. ____________________________________ (or technological efficiency) is achieved. ~ Current output level cannot be produced with less input given existing knowledge and technology. iii. A firms (the owner(s)s) objective is to maximize profit. Production process Production process Production process Production process ~ With given knowledge and technology, a firm converts inputs/factors into outputs; i.e., 3 categories of inputs 3 categories of inputs 3 categories of inputs 3 categories of inputs i. ______________________________________ long lived inputs (land and machines). ii. _______________________________ human services (labor and managerial service) iii. _________________________________________________________ raw inputs Production function Production function Production function Production function: g = G(,,) By efficient production assumption, q is the maximum output level produced for given L, K and M . Inputs are costly, if the inputs are not used to their full extent, the firm is not maximizing profit. ECON 300B Lei Intermediate Microeconomics Winter 2011 2 Dropping input M so that we can focus on simple bivariate production functions: g = G(,) Example Example Example Example Caf ABCs production function is: g = G(,) = 2 / / With = 4 baristas and = 1 espresso machines, the caf can at most produce: g = _______________________________________________ (cups of coffee) 3 determinants of output level 3 determinants of output level 3 determinants of output level 3 determinants of output level i. productivity of inputs ii. variability and time of inputs iii. cost of inputs i. Productivity of inputs i. Productivity of inputs i. Productivity of inputs i. Productivity of inputs Total Product (TP) Total Product (TP) Total Product (TP) Total Product (TP) ~ total amount of output produced with and : = g = G(,) Marginal Product (MP) Marginal Product (MP) Marginal Product (MP) Marginal Product (MP) ~ change in the total product given an additional unit of , holding constant: = g As 0 , = g = G(,) = G (,) ~ change in the total product given an additional unit of , holding constant: = g ECON 300B Lei Intermediate Microeconomics Winter 2011 3 As g 0 , G = g = (,g) g = (,g) Average Product (AP) Average Product (AP) Average Product (AP) Average Product (AP) ~ total product per unit of , i.e. the amount each unit of produces on average: = = (,g) ~ total product per unit of g , i.e. the amount each unit of , i....
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chp6 - ECON 300B Lei Intermediate Microeconomics Winter...

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