Lecture 4 - Mercedes Miranda BE530 Mercedes Miranda BE530 1...

Info iconThis preview shows pages 1–12. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Mercedes Miranda BE530 Mercedes Miranda BE530 1 Firms and Production 2 You run General Motors. List 3 different costs you have. List 3 different business decisions that are affected by your costs. A C T I V E L E A R N I N G A C T I V E L E A R N I N G 1 1 : : Brainstorming costs Brainstorming costs 3 In this lecture, look for answers to these questions: What is a production function? What is marginal product? What is the average product? How are they related? How is production different in the short run vs. the long run? What are economies of scale? Objectives 4 The theory of the firm describes how a firm makes cost- minimizing production decisions and how the firms resulting cost varies with its output. The Production Decisions of a Firm The production decisions of firms are analogous to the purchasing decisions of consumers, and can likewise be understood in three steps: Production Technology Cost Constraints Input Choices 1. Production 5 Total Revenue, Total Cost, Profit We assume that the firms goal is to maximize profit . Profit = Total revenue Total cost the amount a firm receives from the sale of its output the market value of the inputs a firm uses in production = R C 6 What are the Categories of Inputs? Capital ( K ) - long-lived inputs land, buildings (factories, stores), and equipment (machines, trucks) Labor ( L ) - human services managers, skilled workers (architects, economists, engineers, plumbers), and less-skilled workers (custodians, construction laborers, assembly-line workers) Materials ( M ) - raw goods (oil, water, wheat) and processed products (aluminum, plastic, paper, steel) 7 The Production Function A production function shows the relationship between the quantity of inputs used to produce a good and the quantity of output of that good. It can be represented by a table, equation, or graph. 8 Production Function Formally, q = f(L, K) where q units of output are produced using L units of labor services and K units of capital (the number of conveyor belts). Production Function q = f(L, K) Output q Inputs (L, K) 9 500 1,000 1,500 2,000 2,500 3,000 1 2 3 4 5 No. of workers Quantity of output 3000 5 2800 4 2400 3 1800 2 1000 1 Q (bushels of wheat) L (no. of workers) Ex. 1: Farmer Jacks Production Function 10 If Jack hires one more worker, his output rises by the marginal product of labor . The marginal product of any input is the increase in output arising from an additional unit of that input, holding all other inputs constant. Notation: (delta) = change in Examples: Q = change in output, L = change in labor Marginal product of labor ( MPL ) = Q L Marginal Product 11 3000 5 2800 4 2400 3 1800 2 1000 1 Q (bushels of wheat) L (no. of workers) Ex. 1: Total & Marginal Product 200 400 600 800 1000 MPL Q = 1000 L = 1 Q = 800 L = 1 Q = 600 L = 1 Q = 400 L = 1 Q = 200 L = 1 12...
View Full Document

Page1 / 35

Lecture 4 - Mercedes Miranda BE530 Mercedes Miranda BE530 1...

This preview shows document pages 1 - 12. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online