332ch.7 handouts

332ch.7 handouts - Chapter 7 Handouts Production Analysis...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 7 Handouts Production Analysis Production: transforming inputs (land, labor, capital, materials) into outputs (goods and services). Short Run Production: the time period in which at least one input is fixed (and at least one variable) Typically assume K (capital) is fixed o Ex: size of plant, or production capacity o K is usually expressed in terms of machine hours Typically assume L (labor) is variable. o Ex: can easily adjust number of labor hours to meet production needs (can hire more people or have existing staff working extra hours to increase labor input; or can lay off people or having existing staff work less hour to decrease labor input) o L is typically expressed in terms of labor hours The short run will be different for each industry or firm depending on several factors: o Their current production level relative to capacity, o Their financial ability to increase capital, and o Length of long-term contracts. Production Function: Q= f (K, L, ….) Q= quantity of output produced Function of amount of K, L, and other inputs such as materials The bar over K indicates the level of capital is fixed It shows the maximum amount that can be produced given a fixed amount of inputs
Background image of page 1

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

View Full DocumentRight Arrow Icon
3 measures of productivity : 1. Total Product (TP): shows the maximum produced given various levels of K, L. Measures the total productivity of a production process or the number of units produced in a given time frame. 2. Marginal Product (MP): measures the change in total product when the level a variable input is changed. As we increase labor by one unit we can see the contribution to total output. MP tells us when we add a worker how many extra units of output will be produced by this worker. MP is an individual measure of productivity (each worker’s or each labor hour’s contribution in terms of the amount of output produced) 3. Average Product (AP): measures the average productivity level of our variable input, labor. Instead of using an individual measure of productivity we look at the entire labor force or a subset of the labor force and measure its collective, average, productivity.
Background image of page 2
AP is most commonly used to compare productivity levels across different production sites or across countries. AP is also used then as a measure of standard of living since productivity and wages are directly linked.
Background image of page 3

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

View Full DocumentRight Arrow Icon
Example: Daily Plant Output of Copper Wire Capital (Machine Hours) Labor (person hours) TP or Output (in pounds) MP (pounds per person-per hour) AP (pounds per person-per hour) 40 0 0 ----- -------- 40 10 1000 40 20 2500 40 30 4500 40 40 6000 40 50 7000 40 60 7500 40 70 7500 40 80 6000 A. Fill in the table above B. Graph TP on upper graph; MP, AP on lower graph to see typical relationship between the three different measures
Background image of page 4
Background image of page 5

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

View Full DocumentRight Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 18

332ch.7 handouts - Chapter 7 Handouts Production Analysis...

This preview shows document pages 1 - 6. Sign up to view the full document.

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