Lecture15-2012VA. Prod. and Cost

Lecture15-2012VA. Prod. and Cost - Special Production...

This preview shows pages 1–6. Sign up to view the full content.

Northwestern University ECON 310-1: Microeconomic Theory Professors Jim Hornsten and Ron Braeutigam Winter 2012 Special Production Functions Introduction to Costs Notes for Lecture #15

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Northwestern University ECON 310-1: Microeconomic Theory Professors Jim Hornsten and Ron Braeutigam Winter 2012 2 Last time… Describing the technology available to a firm Learned how to use a production function to show how much output a firm can produce with any given set of inputs. (Learning Outcome 5 on course syllabus) A production function describes the menu of choices of inputs (like K and L) that a manager can be used to produce any required level of output. Today: How can we use special types of production functions to describe technology? And we begin to discuss two challenges confronting managers: How should a production manager choose inputs to minimize the total cost of producing any required level of output? (Learning Outcome 6) What are the differences between accounting costs and economic costs? Why do these differences matter? (Learning Outcome 7) Relating Production Functions and Cost Functions
Northwestern University ECON 310-1: Microeconomic Theory Professors Jim Hornsten and Ron Braeutigam Winter 2012 Production with Perfectly Substitutable Inputs 5) What can you say about the MRTS when two inputs are perfect substitutes? If the two goods were Exxon gasoline (E) and Mobil gasoline (M), then the slope of the isoquant would be -1, a constant. H 10 L 5 10 20 2) What are the marginal products MP H and MP L ? ? H L, MRTS Note: With perfect substitutes, MRTS L,K is constant, but may be something other than 1. Each high-capacity disk drive can store 200 GB. H is # of high-capacity (200GB) disk drives Each low-capacity disk drive can store 100 GB. L is # of low-capacity (100GB) drives. 1) Draw the isoquants for Q = 2000 GB and Q = 1000 GB. 3) Slope of Isoquant = ? 4) What is the equation of the production function?

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Northwestern University ECON 310-1: Microeconomic Theory Professors Jim Hornsten and Ron Braeutigam Winter 2012 Leontief Production Function Inputs are Perfect Complements Example: The production of each bicycle requires 1 frame and 2 tires. No substitution among inputs is possible. Factors of production must be used in fixed proportion. F, Number of frames 4 6 T, Number of tires 8 3 4 2 2 1 7 5 3 1 2) Write an equation that represents the production function. What is Q=F(T,F)? 1) On the graph show the isoquants for 1 bicycle 2 bicycles, and 3 bicycles.
Northwestern University ECON 310-1: Microeconomic Theory Professors Jim Hornsten and Ron Braeutigam Winter 2012 When isoquant has a kink or is nearly L-shaped , MRTS L,K changes dramatically as we move along

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/16/2012 for the course ECON 310-1 taught by Professor Schulz during the Winter '08 term at Northwestern.

Page1 / 14

Lecture15-2012VA. Prod. and Cost - Special Production...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online