Topic04_Prod

# Topic04_Prod - Topic 4 Production COMM 295 295 Dr Ratna K...

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Topic 4 Production OMM 295 COMM 295 r. Ratna K. Shrestha Dr. Ratna K. Shrestha

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troduction Introduction z How managers can determine which inputs and how much of each input to use to produce a desired level of output at the inimum ost? minimum cost? z This requires the knowledge of production chnology or production function technology or production function. z The production function gives us the aximum level of output that a given maximum level of output that a given combination of inputs can produce (for a given technology). 2
he Technology of Production The Technology of Production z If technology improves, more output can be produced for a given level of input combination (say capital K and labor L). Mathematically, ± Q = F(K,L) z Short Run versus Long Run ± In the short run some factors of production are fixed. For example it can take a several years for Ford to build a ew assembly line 3 new assembly line.

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he Technology of Production The Technology of Production hus the level of capital (K) is generally ± Thus the level of capital (K) is generally fixed in the short run. Short-run production function may be written as: Q = F(K*, L), where K* is fixed. z However in the long run , managers can adjust all factors of production. So managers have better flexibility in the long run to minimize the costs of producing a given level of output than in the short run. 4
easure of Productivity Measure of Productivity z Average Products of Labor (AP L ) and Q AP = Capital (AP K ): Q AP = L L K K z Marginal Products (MP) : measures how much more Q one extra L (keeping K fixed) or K (keeping L fixed) can produce. L Q MP L = K Q MP K = 5

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roduction: One Variable Input L Production: One Variable Input, L 6
roduction: One Variable Input Output Production: One Variable Input Total Product Curve per Month 112 D s L increases (with K C As L increases (with K fixed), Q increases as MP L is positive, and assumes s maximum value at 60 B its maximum value at point D. Beyond D, MP L is negative.

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Topic04_Prod - Topic 4 Production COMM 295 295 Dr Ratna K...

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