The Production Function

# The Production Function - A production function shows the...

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THE COSTS OF PRODUCTION 1 The Production Function A production function shows the relationship between the quantity of inputs used to produce a good and the quantity of output of that good. It can be represented by a table, equation, or graph. Example 1: Farmer Jack grows wheat. He has 5 acres of land. He can hire as many workers as he wants.

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THE COSTS OF PRODUCTION 2 0 500 1,000 1,500 2,000 2,500 3,000 0 1 2 3 4 5 No. of workers Quantity of output Example 1:  Farmer Jack’s Production Function 3000 5 2800 4 2400 3 1800 2 1000 1 0 0 Q (bushels of wheat) L (no. of workers)
THE COSTS OF PRODUCTION 3 Marginal Product If Jack hires one more worker, his output rises by the marginal product of labor . The marginal product of any input is the increase in output arising from an additional unit of that input, holding all other inputs constant. Notation: (delta) = “change in…” Examples: Q = change in output, L = change in labor Marginal product of labor ( MPL ) = Q L

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THE COSTS OF PRODUCTION 4 3000 5 2800 4 2400 3 1800 2 1000 1 0 0 Q (bushels of wheat) L (no. of workers) EXAMPLE 1:   Total & Marginal Product 200 400 600 800 1000 MPL Q = 1000 L = 1 Q = 800 L = 1 Q = 600 L = 1 Q = 400 L = 1 Q = 200 L = 1
THE COSTS OF PRODUCTION 5 MPL equals the slope of the production function. Notice that MPL diminishes as L increases. This explains why the production function gets flatter as L increases. 0

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The Production Function - A production function shows the...

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