F x1 combinations of inputs 1 and that are x1 su c of

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Unformatted text preview: to produce a given maximum amount of output that we could get if 2we had justunitsient factor 1 and x2 units of factor 2. amount of output. To illustrate a production function with more than one input, let’s consider a situation in which the Isoquants are similar to indi↵erence curves. As we’ve seen earlier, an production of output requires two curve depicts the di↵erent consumption bundles that are broadly illustrate the techindi↵erence inputs: labor (L) and capital (K). This might just nological possibilities facing ientsemiconductor manufacturer But there is one important of robots (capital) or su c a to produce a certain level of utility. contemplating the use humans (labor). The leftdi↵erenceof Figure 2 erence curves and isoquants. Isoquants are labeled panel between indi↵ shows the production function as a 3-dimensional graph that with the amount of output they can produce, not with a utility level. Thus describes the relationship between of isoquants is fixedoutputtechnology and doesn’tof the two inputs employed by the quantity of by the and the quantity have the the labeling the firm. kind of arbitrary nature that the utility labeling has. In the two-input case there is a convenient way to depict production relations known as the isoquant. An isoquant is the set of all possible combinations of inputs 1 and 2 that are just sufficient to produce a 18.3 Examples of Technology given amount of output. Isoquants are similar to indifference curves. As we’ve seen earlier, an indifference Since we already know a lot about indi↵erence curves, it is easy to understand how isoquants work. Let’s consider a few examples of technologies 2 and their isoquants. Fixed Proportions per day; and Q is expressed in thousands of semiconductor chips per day. we can also use a contour plot to represent the production function. However, instead of calling the contour lines indifference curves, we call them isoquants. Isoquant means “same quantity”: any combination of labor and capital along a given isoquant allows the firm to produce the same quantity of output. To illustrate, let’s consider the production function described in Table 6.4 (the same function as in Table 6.3). From this table we see that two different combinations of labor and capital—(L 6, K 18) and (L 18, K 6)—result in an output of Q 25 units (where each “unit” of output represents a thousand semiconductors). Thus, each of these input combinations is on the Q 25 isoquant. The same isoquant is shown in Figure 6.6 (equivalent to Figure 6.5), illustrating the total product hill for the production function in Table 6.4. Suppose that you started c06Inputsandproductionfunctions.qxd isoquant A curve that shows all of the combinations of labor and capital that can produce a given level of output. K, thousands of machine-hours per day A B C 24 E D 18 12 6 0 FIGURE 6.6 Isoquants and the Total Product Hill 6 12 18 24 1:29 PM Page 215 6.3 PRODUCTION FUNCTIONS WITH MORE TH...
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This document was uploaded on 09/21/2013.

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