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# Production cost ppt@ becdoms

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Production cost ppt@ becdoms

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### Production cost ppt@ becdoms

1. 1. The Organization of Production <ul><li>Inputs </li></ul><ul><ul><li>Labor, Capital, Land </li></ul></ul><ul><li>Fixed Inputs </li></ul><ul><li>Variable Inputs </li></ul><ul><li>Short Run </li></ul><ul><ul><li>At least one input is fixed </li></ul></ul><ul><li>Long Run </li></ul><ul><ul><li>All inputs are variable </li></ul></ul>
2. 5. Production Function with One Variable Input Total Product Marginal Product Average Product Production or Output Elasticity TP = Q = f(L) MP L =  TP  L AP L = TP L E L = MP L AP L
3. 9. Optimal Use of the Variable Input Marginal Revenue Product of Labor MRP L = (MP L )(MR) Marginal Resource Cost of Labor MRC L = Optimal Use of Labor MRP L = MRC L  TC  L
4. 12. Production with Two Variable Inputs Isoquants show combinations of two inputs that can produce the same level of output. Firms will only use combinations of two inputs that are in the economic region of production , which is defined by the portion of each isoquant that is negatively sloped.
5. 16. Production with Two Variable Inputs Marginal Rate of Technical Substitution MRTS = -  K/  L = MP L /MP K
6. 20. Optimal Combination of Inputs Isocost lines represent all combinations of two inputs that a firm can purchase with the same total cost.
7. 24. Returns to Scale Production Function Q = f(L, K)  Q = f(hL, hK) If  = h, then f has constant returns to scale. If  > h, then f has increasing returns to scale. If  < h, then f has decreasing returns to scale.
8. 27. Empirical Production Functions Cobb-Douglas Production Function Q = AK a L b Estimated Using Natural Logarithms ln Q = ln A + a ln K + b ln L
9. 28. Innovations and Global Competitiveness <ul><li>Product Innovation </li></ul><ul><li>Process Innovation </li></ul><ul><li>Product Cycle Model </li></ul><ul><li>Just-In-Time Production System </li></ul><ul><li>Competitive Benchmarking </li></ul><ul><li>Computer-Aided Design (CAD) </li></ul><ul><li>Computer-Aided Manufacturing (CAM) </li></ul>