Rubinstein2005-page97 - K-dimensional Euclidean space A...

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October 21, 2005 12:18 master Sheet number 95 Page number 79 LECTURE 7 Production The Producer: The Basic Model We will turn now to a very brief discussion of the basic concepts in classic producer theory. As this involves only a few new abstract ideas, we make do with a short introduction to the concepts and implicit assumptions. Usually we view the Frm as a special type of rational decision maker. Recall that when discussing the consumer we imposed a strong structure on the choice sets but few constraints on the pref- erences. In contrast, classic producer theory assigns the producer a highly structured target function but fewer constraints on the choice sets. Let 1, ... , K be commodities. The producer’s choice will be made from subsets of the “grand set,” which will be taken to be a
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Unformatted text preview: K-dimensional Euclidean space. A vector z in this space is interpreted as a production combination; positive components in z are inter-preted as outputs and negative components as inputs. Producer’s Preferences It is assumed that the goal of the producer (frm) is to maximize proFts. The competitive producer faces a vector of prices p = ( p k ) k = 1, ... , K (for inputs and outputs). If he chooses z , his proFts (revenues minus costs) will be pz = ∑ k k = 1 p k · z k . In other words, it is assumed that his preferences over any set of possible production combinations are represented by the utility function pz . Technology A producer’s choice set is called a technology and speciFes the pro-duction constraints....
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This note was uploaded on 12/29/2011 for the course ECO 443 taught by Professor Aswa during the Fall '10 term at SUNY Stony Brook.

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