Hill 6 12 18 24 129 pm page 215 63 production

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Unformatted text preview: AN ONE INPUT All combinations of L and K along path ABCDE produce 25 units of output, where each "unit" represents a thousand semiconductor chips. thousands K of machine30 hours per day North 6/28/10 L, thousands 30 of man-hours per day East B 18 Q3 > Q2 D 6 0 Q2 > 25 Q1 = 25 6 18 L, thousands of man-hours per day FIGURE 6.8 Isoquants for the Production Function in Table 6.4 and Figure 6.6 Every input combination of labor and capital along the Q1 25 isoquant (in particular, combinations B and D) produces the same output, 25,000 semiconductor chips per day. As we move to the northeast, the isoquants correspond to progressively higher outputs. Figure 2: A production function with two inputs. If we start at point A and walk along the hill so that our elevation remains unchanged at 25 units of output, then we will trace out the path ABCDE. This is the 25-unit isoquant for this production function. topographical map shows points in geographic space at which the elevation of the land constant. The total product hill in Figure 6.6 is certain level of utility. curve depicts the different consumption bundles that are isjust Mount Hood in panel (a) of Figure 6.7,aand the isoquants ofthree-dimensional sufficient to produce analogous to the the total product map of hill (see Figure 6.8) isoquants. lines on the topographical map of Mount But there is one important difference between indifference curves andare analogous to theIsoquants are labeled with Hood in panel (b) of Figure 6.7. the amount of output they can produce, not with a utility level.6.8 shows the labeling of isoquants is fixed by Figure Thus isoquants for the production function in Table 6.4 and Figure 6.6. The fact that the isoquants are downward sloping in Figure the technology and doesn’t have the kind of arbitrary nature thateconomic trade-off:labeling has.capital for labor6.8 illustrates the utility A firm can substitute an important and keep its output unchanged. If we apply this idea ABCDE, the height of the In the left panel of Figure 2, at each input combination along the segment to a semiconductor firm, it tells us that the firm could produce a given quantity of semiconductors using lots of workers and a product hill is Q = 25, i.e. each of these input combinationsnumber of the Q using 25 isoquant. The right panelisof small is on robots or = fewer workers and more robots. Such substitution always possible whenever Figure 2 shows isoquants for the production function in the left panel. both labor and capital (e.g., robots) have positive marginal products. Any production function has an decisions. isoquants, each one correnumber of Isoquants show the “flexibility” of the firms have when making production infiniteFigure 6.8, It is important to for sponding to a particular level of output. In isoquant Q1 corresponds 25 units of output. Notice that points and D along this isoquant restaurants the managers of a firm to understand the nature of this flexibility. For example,B...
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