lecture11 - Prof. Jay Bhattacharya Spring 2001 Theory of...

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Prof. Jay Bhattacharya Spring 2001 Econ 11--Lecture 12 1 Spring 2001 Econ 11--Lecture 12 1 Theory of the Consumer • Whatwehavedonesofar: • Derived “downward” sloping demand curves from underlying principles – budgets – preferences – optimizing behavior Spring 2001 Econ 11--Lecture 12 2 Theory of the Firm • We will derive “upward sloping” supply curves from underlying principles – Technology – Firm objectives (profit maximization / cost minimization) – Firm optimization Spring 2001 Econ 11--Lecture 12 3 Technology Inputs (coal, steel) Outputs (cars) Firm and Technology Spring 2001 Econ 11--Lecture 12 4 Technology We represent technology by a production function: ) , ( L K f y = β α L AK y = For example: Cobb-Douglass production function: Spring 2001 Econ 11--Lecture 12 5 Production Functions Simple Case: 1 input, 1 output ) ( x f y = y x Spring 2001 Econ 11--Lecture 12 6 Properties of Production Functions 1.Slope of the production function is equal to the marginal product of the input – The marginal physical product of the input (MP x ) is defined as the incremental increase in output associated with an increase in the input. x MP x y =
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Prof. Jay Bhattacharya Spring 2001 Econ 11--Lecture 12 2 Spring 2001 Econ 11--Lecture 12 7 2.Marginal physical products of inputs are positive 3.The average physical product of an input is the ratio of output to the amount of input used 0 > X MP x x f AP X ) ( = Spring 2001 Econ 11--Lecture 12 8 x y ) ( x f y = The average product at any point x is the slope of the line connecting the origin and the total product curve. x x f AP X ) ( = Spring 2001 Econ 11--Lecture 12 9 4. If MP X >AP X ,thenAP X is increasing – MP x x means that the last unit of input will produce more than the average level of output up to that point.
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lecture11 - Prof. Jay Bhattacharya Spring 2001 Theory of...

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