Short Run Production Function

Short Run Production Function - Short Run Production...

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Short Run Production Function o Actual production decisions occur in the short run o Fixed inputs Location (capital) [factory building, office space, etc] Machinery (capital) o Variable Inputs Workers Supplies o Production function Relationship between quantity of variable inputs used to make a good and the quantity of output of that good (given the current amount of fixed input) Assumption: only one variable input (labor) Number of Workers Number of Cookies 0 0 1 40 2 100 3 180 4 240 5 280 6 300 7 310 Marginal Productivity of Labor o the increase in output that arises from an additional unit of labor Atypical Firms o Constant marginal productivity
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No teamwork and specialization and no crowding out effects Short run production function has a constant slope (straight line) MPL=APL (for any number of variable inputs used) ; stay the same (GPA example) Workers Output MPL APL 0 0 - - 2 40 20 20 4 80 20 20 6 120 20 20 8 160 20 20 10 200 20 20 12 240 20 20 14 280 20 20 o Always falling Marginal Productivity Only crowding out of fixed inputs Short run production function increases at a decreasing rate MPL<APL [always] Workers Output MPL APL 0 0 - - 2 60 30 30 4 110 25 27.5 6 150 20 25 8 170 10 21.25 10 180 5 18 12 186 3 15.5 14 190 2 14.28
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o Always Rising Marginal Productivity Only teamwork and specialization Short run production function increases at an increasing rate MPL > APL (always) The costs of Production o Fixed costs of production Do not change with the production level o Average fixed cost of production AFC= FC/Q [fixed costs divided by the number of units your producing] o A decreasing function Workers [L] Output [Q] FC VC TC AFC AVC ATC MC TR Profit 0 0 1500 0 1500 - - - - 0 -$1500 ,2 40 1500 1000 2500 37.5 25 62.5 25 $1000 -$1500 4 100 1500 2000 3500 15 20 35 16.67 $2,500 -$1000 6 180 1500 3000 4500 8.33 16.67 25 12.5 $4,500 0 8 240 1500 4000 5500 6.25 16.67 22.91 16.67 $6,000 $500 10 280 1500 5000 6500 5.35 17.85 23.21 25 $7,000 $500 12 300 1500 6000 7500 5 20 25 50 $7500 0 14 310 1500 7000 8500 4.83 22.58 27.41 100 $7750 -$750 o AFC: is simply FC divided by output o Variable costs of Production
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Change with the production level Determined by marginal productivity [1] VC increase at a decreasing rate first (teamwork and specialization) and then [2] VC increase at an increasing rate (crowding out fixed inputs) Shape of curve depends on this factor Decreasing rate, labor is adding more production each additional worker; increasing rate, labor is adding less production each additional worker Constant marginal productivity? = VC curve is straight line [paying same amount of money to workers, workers are providing same amount of production]
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Short Run Production Function - Short Run Production...

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