lecture10 - Economics 103 Lecture # 10 Costs of Production...

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Economics 103 Lecture # 10 Costs of Production
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When we introduce the idea of Comparative Advantage, we’re talking about different people or different inputs having different costs. Production Function: The amount of output depends on the amount of inputs and is given by: Q = f(L, K …) Now we want to look at a different situation: the same input may experience different costs when used in different proportions with other inputs. We start with the idea of a production function :
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The production function embodies the best technology. It gives you the most output for a given input. What’s the best way to clean a toilet? Use your cat. What will your dog do?
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For the “moment” this function describes “the firm”. We are going to assume it has Constant Returns to Scale (2L, 2K) 2Q (3L,3K) 3Q But we are not going to worry about returns to scale, we will focus in on changes in proportions. That is, changing the L/K ratio.
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Let’s assume that K is fixed. Then changes in L will change the L/K ratio. Let’s also define the Marginal Product of Labor as: ΔQ/ΔL We’ll define the Average Product of Labor as: Q/L How does your semester and cumulative GPA move?
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when the L/K ratio changes. This three stage function
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This note was uploaded on 06/24/2011 for the course ECON 103 taught by Professor Hanafiahharvey during the Spring '08 term at Simon Fraser.

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lecture10 - Economics 103 Lecture # 10 Costs of Production...

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