chapter_6

# chapter_6 - The Technology of Production Production...

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Chapter 6 Slide 1 The Technology of Production Production Function: Indicates the highest output that a firm can produce for every specified combination of inputs given the state of technology. Shows what is technically feasible when the firm operates efficiently . The production function for two inputs, for a given technology: Q = F(K,L) Q = Output , K = Capital, L = Labor

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Chapter 6 Slide 2 Production Function for Food 1 20 40 55 65 75 2 40 60 75 85 90 3 55 75 90 100 105 4 65 85 100 110 115 5 75 90 105 115 120 Capital Input 1 2 3 4 5 Labor Input
Chapter 6 Slide 3 Isoquants Assumptions: Food producer has two inputs: Labor ( L K ) Observations: 1) For any level of K, output increases with more L. 2) For any level of L, output increases with more K. 3) Various combinations of inputs produce the same output. Isoquants: Curves showing all possible combinations of inputs that yield the same output

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Chapter 6 Slide 4 Production with Two Variable Inputs ( L,K ) Labor per year 1 2 3 4 1 2 3 4 5 5 Q 1 = 55 The isoquants are derived from the production function for output of of 55, 75, and 90. A D B Q 2 = 75 Q 3 = 90 C E Capital per year The Isoquant Map
Chapter 6 Slide 5 Isoquants Short-run: Period of time in which quantities of one or more production factors cannot be changed. These inputs are called fixed inputs. Long-run Amount of time needed to make all production inputs variable. The Short Run versus the Long Run

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Chapter 6 Slide 6 Amount Amount Total Average Marginal of Labor ( L ) of Capital ( K ) Output ( Q ) Product Product Production with One Variable Input (Labor) 0 10 0 --- --- 1 10 10 10 10 2 10 30 15 20 3 10 60 20 30 4 10 80 20 20 5 10 95 19 15 6 10 108 18 13 7 10 112 16 4 8 10 112 14 0 9 10 108 12 -4 10 10 100 10 -8
Chapter 6 Slide 7 1) With additional workers, output ( Q ) increases, reaches a maximum, and then decreases. 2) The average product of labor ( AP ), or output per worker, increases and then decreases. Production with One Variable Input (Labor) L Q Input Labor Output AP = =

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Slide 8 3) The marginal product (MP) of labor or output of the additional worker increases rapidly initially and then decreases and becomes negative. . L
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## This note was uploaded on 05/09/2011 for the course ECON 111 taught by Professor Chan during the Spring '11 term at HKU.

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chapter_6 - The Technology of Production Production...

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