microbook_3e-page29

microbook_3e-page29 - o if resources are used efficiently....

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Production Function Quantity produced is a function of capital and labor: Q = f (K, L) x If you have one unit of kapital (for example, one stove in a kitchen) , x and you keep increasing number of workers (labor) at that machine the quantity produced will increase x but at a decreasing rate o because the workers start to get in each other’s way o “too many cooks in the kitchen” Q = f (K, L) This production function is drawn for a fixed amount of capital. x PPF represents: o all the possible combinations of goods (and services) o that can be produced,
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Unformatted text preview: o if resources are used efficiently. x Production possibilities are constrained by amount of labor and capital in the economy. x Cannot produce above PPF x If we shift labor from production of X and into production of Y, o less X will be produced o more Y will be produced x PPF summarizes opportunity cost of all such shifts. x If resources are not used efficiently o labor unemployment, o inefficient management x the economy is producing at a point below the PPF. Production Possibilities Frontier Page 29...
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This note was uploaded on 12/29/2011 for the course ECO 311 taught by Professor Willis during the Fall '10 term at SUNY Stony Brook.

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