# ch06 - Chapter 6 Inputs and Productio n Function s 1...

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1 Inputs and Productio n Function s Chapter 6

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2 Chapter Six Overview 1. Motivation 1. The Production Function Marginal and Average Products Isoquants The Marginal Rate of Technical Substitution 1. Technical Progress 1. Returns to Scale 1. Some Special Functional Forms Chapter Six
3 Chapter Six Production of Semiconductor Chips “Fabs” cost \$1 to \$2 billion to construct and are obsolete in 3 to 5 years Must get fab design “right” Choice: Robots or Humans? Up-front investment in robotics vs. better chip yields and lower labor costs? Capital-intensive or labor- intensive production process?

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4 Chapter Six Productive resources, such as labor and capital equipment, that firms use to manufacture goods and services are called inputs or factors of production. The amount of goods and services produces by the firm is the firm’s output. Production transforms a set of inputs into a set of outputs Technology determines the quantity of output that is feasible to attain for a given set of inputs. Key Concepts
5 Chapter Six Key Concepts The production function tells us the maximum possible output that can be attained by the firm for any given quantity of inputs. The production set is a set of technically feasible combinations of inputs and outputs. Production Function: Q = output K = Capital L = Labor ) , ( K L f Q =

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6 Q = f(L) L Q C D A B Production Set Production Function Chapter Six The Production Function & Technical Efficiency
7 Chapter Six Technically efficient: Sets of points in the production function that maximizes output given input (labor) Technically inefficient: Sets of points that produces less output than possible for a given set of input (labor) ) , ( K L f Q = ) , ( K L f Q <

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8 Chapter Six The Production Function & Technical Efficiency
9 Chapter Six Labor Requirements Function Labor requirements function Example: for production function ) ( Q g L = 2 Q L = L Q =

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10 Chapter Six The Production & Utility Functions
11 Chapter Six The Production & Utility Functions

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12 Production Function Q = K 1/2 L 1/2  in Table Form Chapter Six The Production Function & Technical Efficiency
13 Chapter Six Total Product Total Product Function : A single-input production function. It shows how total output depends on the level of the input Increasing Marginal Returns to Labor

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ch06 - Chapter 6 Inputs and Productio n Function s 1...

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