Chapter 9
Production
Chapter Summary
Starting with Chapter 9 the discussion shifts from a focus on the consumer to a focus on
production and the firm. Chapter 9 is primarily concerned with the theory of production. The text
begins with an example of a production worker, Woody Allen, to illustrate the point that
production includes not only widgets and automobiles but any good or service that people desire.
The first section deals with production functions. After a discussion of fixed versus variable
inputs, a production function with one variable input (labor) and one fixed input (capital) is
considered. The concepts of total, marginal, and average product are developed and the text
spends a great deal of time distinguishing between average and marginal products, including a
carefully worked out example involving maximizing the amount of beef produced from 2000
steer who can graze on one of two pastures.
The next section covers production functions with two variables It begins with a discussion
of isoquants. The topics of increasing, decreasing, and constant returns to scale conclude the
chapter. The more technical mathematical elements of production theory are presented in an
appendix.
Chapter Outline
Chapter Preview
The InputOutput Relationship, or Production Function
Production with One Variable Input
The Relationship Between Total, Marginal, and Average Product Curves
The Practical Significance of the Average Marginal Distinction
Production with TwoVariable Inputs
Returns to Scale
Summary
Appendix: Mathematical Extensions of Production Theory
Teaching Suggestions
1.
Have students sketch out a production matrix in class for a local McDonald's restaurant.
Force them to fill in the boxes with actual hamburger numbers as the number of workers
increases. At first increasing returns will most likely be evident because students intuitively
realize things like specialization and timemotion efficiency. They may have less of an
intuitive sense of diminishing returns, but you can always get there if you have enough
columns to add labor. Under what conditions would the total product fall to zero? It is not
too early to ask students how many workers they would hire if they were the manager. Only
a few will recognize that the wage rate must be related to the marginal product. If the
numbers are reasonable in your production matrix, you can use the data to illustrate the
relationship between average and marginal product and the normal stage 2 of production.
Students can understand readily why no hiring will occur beyond the zero marginal product
point, but they have trouble seeing the significance of the point where AP
L
and MP
L
are
equal. (See stumbling block 2 below.)
2.
If you used some threedimensional aid for consumer utility, drag it out again to illustrate the
typical production surface. I like to start with this method because students can see the short
and longrun distinctions as merely different cuts of the production mountain. The difference
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview.
Sign up
to
access the rest of the document.
 Spring '11
 JANG,HAJOON
 AP, Marginal product, Economics of production

Click to edit the document details