4/18/2011
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Technology
Chapter 18
Technology
Production functions
Isoquants
Marginal Product
Returns to scale
Technical rate of substitution
Long run vs Short run
Technology
A technology decribes how inputs are converted
to some output
Lecture is being produced by using computer,
projector, software, labour
, etc…
Production function: The maximum amount of
output (y) one can produce using inputs x
1
, x
2
,
x
3
,…,
x
n
Production Function
y = f(x) is the
production
function.
x’
x
Input Level
Output Level
y’
y’ = f(x’) is the maximal
output level obtainable
from x’ input units.
One input, one output
Production function with more
more than one input
Labour and Capital used for manufacturing
production
Labour and land for agricultural production
How are different factors/inputs combined to
produce output?
Isoquant:
Combination of different inputs that
produce the same level of output
Fixed-proportion technologies
Y = Digging holes, X
1
= labourers, X
2
= shovels
Y = Min{ X
1
, X
2
}
X
1
= 1, X
2
= 1; Y = Min{ 1, 1 } = 1
X
1
= 2, X
2
= 1; Y = Min{ 2, 1 } = 1
X
1
= 1, X
2
= 2; Y = Min{ 1, 2 } = 1
These combinations all produce the same
output: one unit.
These inputs have be used in fixed proportions.
Adding more of one without having more the
other does not help.

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