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lecture15_slides

lecture15_slides - Econ 121 Intermediate Microeconomics...

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Econ 121. Intermediate Microeconomics. Eduardo Faingold Yale University Lecture 15
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Outline of the course I. Introduction II. Individual choice III. Competitive markets IV. Market failure
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Outline of the course I. Introduction II. Individual choice III. Competitive markets ± Partial equilibrium (Ch. 16) ± Exchange economies (Ch. 31) ± Production (Ch. 18–23) IV. Market failure
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Production Technological constraints of a firm represented by a production set in input-output space. Consider the one input one output case. Boundary of production set is y D f.x/; where the function f is called the production function.
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Production Now consider the two input one output case. Production function: y D f.x 1 ; x 2 /; where y is the output level, and x 1 and x 2 are the input levels. Inputs 1 and 2 are sometimes called production factors .
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Production Isoquants: Set of input combinations .x 1 ; x 2 / with f.x 1 ; x 2 / D N y , for given N y .
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Three leading examples ± Cobb-Douglas: f.x 1 ;x 2 / D Ax a 1 x b 2 . ± Perfect complements: f.x 1 ; x 2 / D min f x 1 ; x 2 g . ± Perfect substitutes: f.x 1 ; x 2 / D ax 1 C bx 2 .
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Standard assumptions on technology ± Monotonicity : production function f.x 1 ; x 2 / is increasing in x 1 and x 2 ± Convexity : isoquants are convex
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Marginal product. Technical Rate of Substitution.
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