IMCh9new07 - Chapter 9 Production Chapter Summary Starting...

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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 Input-Output 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 Two-Variable 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 time-motion 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 three-dimensional 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 long-run distinctions as merely different cuts of the production mountain. The difference
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This note was uploaded on 09/16/2011 for the course ECON/ACCOU 101 taught by Professor Jang,hajoon during the Spring '11 term at Korea University.

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IMCh9new07 - Chapter 9 Production Chapter Summary Starting...

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