Topic_1_-_Production_Technology_Basics

# Topic_1_-_Production_Technology_Basics - macro In this...

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Production Technology Basics macro Topic 1 Topic 1 – Production Technology Production Technology slide 1 In this topic you will learn: In this topic you will learn: ± The Cobb-Douglas production technology ± What determines the economy’s total output/income ± How the prices of the factors of production are determined ± How total income is distributed Topic 1 Topic 1 – Production Technology Production Technology slide 2 Technologies ± A technology is a process by which inputs are converted to an output. ± E.g. labour, a computer, a projector, electricity, and software are being combined to produce this lecture. Topic 1 – Production Technology Production Technology slide 3 Technologies ± Usually several technologies will produce the same product -- a blackboard and chalk can be used instead of a computer and a projector. ± Which technology is “best”? ± How do we compare technologies? Topic 1 Topic 1 – Production Technology Production Technology slide 4 Input Bundles Input Bundles ± x i denotes the amount used of input i ; i.e. the level of input i. ± An input bundle is a vector of the input levels; (x 1 , x 2 , … , x n ). ± (x 1 , x 2 , x 3 ) = (6, 0, 9 3). Topic 1 – Production Technology Production Technology slide 5 Production Functions Production Functions ± Y denotes the output level. ± The technology’s production function states the maximum amount of output possible from an input bundle. 1 (,, ) n Y f XX = "

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Topic 1 Topic 1 – Production Technology Production Technology slide 6 Cobb Cobb -Douglas Technologies Douglas Technologies ± A Cobb-Douglas production function is of the form E.g. with 12 . n a aa n YA XX X × " 1/3 YXX = 11 2, 1, 33 . n A a and a === = Topic 1 Topic 1 – Production Technology Production Technology slide 7 x 2 x 1 All isoquants are hyperbolic, asymptoting to, but never touching any axis. Cobb Cobb -Douglas Technologies Douglas Technologies YX X = Topic 1 Topic 1 – Production Technology Production Technology slide 8 Marginal (Physical) Products Marginal (Physical) Products ± The marginal product of input i is the rate- of-change of the output level as the level of input i changes, holding all other input levels fixed . ± That is, 1 (,, ) n Yf X X = " i i Y MP X = Topic 1 – Production Technology Production Technology slide 9 Marginal (Physical) Products Marginal (Physical) Products 2/3 2 1 1 3 Y M PX X X == E.g. if 1/ 3 2/ 3 1 2 (, ) YfXX XX then the marginal product of inputs 1 and 2 are: 21 2 2 2 . 3 Y MP X X X Topic 1 Topic 1 – Production Technology Production Technology slide 10 Marginal (Physical) Products Marginal (Physical) Products Typically the marginal product of one input depends upon the amount used of other inputs. E.g. if 2 1 3 M PXX = then, 1 14 8 X X −− and if x 2 = 27 then if x 2 = 8, 1 1 27 3 .
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## This note was uploaded on 11/12/2011 for the course ECON 2003 taught by Professor Macoeconomics2 during the Spring '10 term at University of the West Indies at Mona.

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Topic_1_-_Production_Technology_Basics - macro In this...

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