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Unformatted text preview: Lecture 10 Production I And when ye reap the harvest of your land, thou shalt not wholly reap the corners of thy field, neither shalt thou gather the gleanings of thy harvest. And thou shalt not glean thy vineyard, neither shalt thou gather every grape of thy vineyard; thou shalt leave them for the poor and stranger: I am the LORD your God. Leviticus 19:9-10 The Economics Outline 1. Production Function 2. MP Marginal Physical Product 3. Diminishing Marginal Productivity 4. Average Physical Product 5. Isoquants 6. Marginal Rate of Technical Substitution The Mathematics Outline 1. Algebra 2. Calculus 3. Total Differentials In producer theory we are interested how firms make optimal production decisions. We will start by talking about production and then move to the cost of producing. Once we have these two components in place we will have the pieces we need to talk about maximizing profit. We will then end this part of the class by developing demand functions for inputs into the production process. The Production Function Here we are interested in the relationship between inputs and outputs in production. To simplify the model, we will consider two inputs, capital (the machinery) and labor (the people). q = quantity (output) produced by a firm K = amount of capital (input) used in production L = amount of labor (input) used in production The production function ) , ( L K f q = Dr. Steven Waters Econ 380 Page 1 of 7 L10: Production I Marginal Physical Product (MP) Just like in consumer theory when we used the concept of marginal utility to see how utility changes as you change consumption of a single good, in producer theory we have a marginal concept to see how production (output) changes when an input is changed. This concept is Marginal Physical Product, or sometimes just called marginal product. concept is Marginal Physical Product, or sometimes just called marginal product....
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- Spring '11