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# day7pr - PADP 6950 Founda1ons of Policy Analysis Theory of...

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Unformatted text preview: PADP 6950: Founda1ons of Policy Analysis Theory of the Firm PRACTICE Angela Fer1g, PhD Golf Ball Game Developing a short-run produc1on func1on: Produc1on: moving golf balls to final bucket in 30 sec K is fixed: 15 J by 5 J space, 2 buckets Technology for now: every worker must touch every golf ball use only one hand one ball at a 1me if ball drops, leave it and start again Need a volunteer to count final product I will keep 1me (unless someone wants to do it) 1 Volunteer will fill out total product; Everyone will calculate last 2 columns Labor 1 2 3 4 5 6 7 8 9 10 11 Total Product Average Product Marginal Product SR Produc1on Func1on Graph 2 Discussion Why is there diminishing MP? Should we stop adding workers when the MP starts to decrease or when it becomes nega1ve? Now, let's change technology: all workers run from bucket to bucket Labor 1 2 3 4 5 6 7 8 9 10 11 Total Product Average Product Marginal Product 3 SR Produc1on Func1on Graph w/ both technologies Discussion Which technology is be_er? What are some other possible technologies? 4 Now, let's switch to the long-run We can choose K and L so let's try a bunch of combina1ons and see which ones give us the same Q LR Produc1on Schedule Capital 3 buckets 3 buckets 3 buckets 3 buckets 3 buckets 4 buckets 4 buckets 4 buckets 4 buckets 4 buckets 4 buckets Labor 2 3 4 5 6 2 3 4 5 6 7 Total Product 5 LR Produc1on Func1on Graph Discussion Why is there diminishing technical rate of subs1tu1on? 6 Let's introduce profit (SR case) Let PQ=\$5, PL=\$10, PK=\$10 (where K=bucket) Labor 1 2 3 4 5 6 7 8 9 10 11 Total Product Total Revenue Total Cost Profit SR Profit Max Graph 7 LR Profit Schedule Let PQ=\$5, PL=\$10, PK=\$10 (where K=bucket) Capital 3 buckets 3 buckets 3 buckets 3 buckets 3 buckets 4 buckets 4 buckets 4 buckets 4 buckets 4 buckets 4 buckets Labor 2 3 4 5 6 2 3 4 5 6 7 Total Product Total Revenue Total Cost Profit LR Profit Max Graph 8 ...
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