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THEORY OF PRODUCTION
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object]
Long run and short run: ,[object Object],[object Object],[object Object]
Production Function ,[object Object],x Q Q = output x = inputs
Production Function   continued ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
DEFINITIONS: ,[object Object],[object Object],[object Object],[object Object]
Short run labour Total product Average product Marginal product 1 10 10 10 2 24 12 14 3 39 13 15 4 52 13 13 5 61 12.2 9 6 66 11 5 7 66 9.4 0 8 64 8 -2
Marginal and Average product: ,[object Object],[object Object],[object Object]
P: Maximum Average Product  Q & R : Same Average Product
[object Object],[object Object],[object Object],[object Object]
Law of Diminishing Returns (Diminishing Marginal Product) ,[object Object],[object Object],[object Object]
Three stages of production: ,[object Object],[object Object],[object Object]
Three Stages of Production in Short Run AP,MP X Stage I Stage II Stage III AP X MP X
Long run production: ,[object Object]
Production in the Long-Run ,[object Object],[object Object],[object Object],[object Object]
An isoquant fig Units of  K 40 20 10 6 4 Units of  L 5 12 20 30 50 Point on diagram a b c d e a Units of labour ( L ) Units of capital ( K ) b c d
Isoquants and the Production Function ,[object Object],[object Object],[object Object]
Properties of Isoquants ,[object Object],[object Object]
Properties of Isoquants ,[object Object],[object Object]
Substitutability of Inputs ,[object Object],[object Object],[object Object]
Substitutability of Inputs ,[object Object],[object Object]
Isoquant Maps for Perfect Substitutes and Perfect Complements
Substitutability of Inputs ,[object Object],[object Object]
The Marginal Rate of Technical Substitution
Marginal Rate of Technical Substitution ,[object Object],[object Object]
Law of Diminishing Marginal Rate of Technical Substitution :
Marginal Rate of Technical Substitution ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Marginal Rate of Technical Substitution ,[object Object],[object Object]
Isocost Lines ,[object Object],[object Object],[object Object],[object Object],[object Object]
Choice of Input Combinations ,[object Object],[object Object],[object Object],[object Object]
Maximizing Output for a given cost
Minimizing Cost subject to given Output
Expansion Path ,[object Object]
[object Object],[object Object],[object Object],[object Object]
Expansion Path ,[object Object],[object Object]
Returns to Scale ,[object Object],[object Object],[object Object]
Returns to Scale ,[object Object],[object Object]
Returns to Scale ,[object Object],[object Object]
The Distinction between Diminishing Returns and Decreasing Returns to Scale  ,[object Object],[object Object]
Constant returns to scale fig Units of capital ( K ) Units of labour (L) 200 300 400 500 600 R a b c
Increasing returns to scale (beyond point b) fig Units of capital ( K ) Units of labour (L) 200 300 400 500 600 a b c R 700
Decreasing returns to scale (beyond point b) fig Units of capital ( K ) Units of labour (L) 200 300 400 500 a b c R
Returns to Scale Shown on the Isoquant Map
Economic Region of Production ,[object Object],[object Object]
Economic Region of Production ,[object Object],[object Object]
Economic Region of Production ,[object Object],[object Object]
Homogeneous Production function: ,[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object]
A simple production function is the Cobb-Douglas form ,[object Object],[object Object],[object Object],[object Object]
ISOCLINE: ,[object Object],[object Object],[object Object]
Cobb – Douglas Production Function: ,[object Object],[object Object],[object Object],[object Object],[object Object]

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Theory of production 2