Ch06 - Chapter 6 Inputs and Production Functions Inputs and...

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Unformatted text preview: Chapter 6 Inputs and Production Functions Inputs and Production Functions • Consider a semiconductor production. The producer combine the labor provided by their employees, capital services provided by robots, and row materials such as silicon to produce finished chips. • Inputs (or factors of production): Resources, such as labor, capital equipment, and raw materials, that are combined to produce finished goods. • Output: The amount of a good or service produced by a firm. • The production function tells us the maximum quantity of output the firm can produce given the quantities of the inputs: Q = f (L, K) where Q is the output, L is the labor and K is the capital. • Production function: A mathematical representation that shows the maximum quantity of output a firm can produce given the quantities of inputs that it might employ. Inputs and Production Functions • The figure (next slide) depicts the production function with single input, labor: Q = f (L) . – All points A, B, C and D belongs to production set . – A and B are technically inefficient . – C and D are technically efficient . • Production set: The set of technically feasible combinations of inputs and outputs. • Technically inefficient: The set of points in the production set at which the firm is getting less output from its labor than it could. • Technically efficient: The set of points in the production set at which the firm is producing as much output as it possibly can given the amount of labor it employs. • By inverting the production function, we get: L = g(Q) • Labor requirements function: A function that indicates the minimum amount of labor required to produce a given amount of output. Inputs and Production Functions Production Functions with a Single Input • Total product function: It shows how total output depends...
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This note was uploaded on 02/29/2012 for the course 320 322 taught by Professor Macro-williams,micro-yoshi during the Fall '10 term at Rutgers.

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Ch06 - Chapter 6 Inputs and Production Functions Inputs and...

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