EC4004 Lecture 9
   Production




            Dr Stephen Kinsella
Last Time
Game Theory
{Players, Strategies, Payoffs}
Nash Eqm,
Subgame Perf . Eqm
Backward Induction
         Prisoner’s Dilemma
           Matc...
Production.
?
Production
 Function
production function, a mathematical
relationship between inputs and outputs.
Combine Capital
Combine Capital
Combine Capital
Combine Capital and
     Labour
Combine Capital and
 Labour to produce
      output
q :output of a particular good during a period,
K: capital used
L: labour input
M: raw materials
Marginal
Products
Diminishing
  Marginal
   Product
Relationship between Output and Labour Inputs
        Holding Other Inputs Constant

  Output                             ...
Isoquant Maps
Capital
per week



     KA
            A




     KB
                     B        q = 10

                              ...
Capital
per week


       KA
                A

                                           q = 30

                       ...
Rate of Technical
  Substitution
The RTS and Marginal
      Products
Demo
Remember:



Diminishing Marginal Utility,
Indifference Curves,
Marginal Rate of Substitution
Constant Returns to Scale
A
 Capital
per week

    4
                          q = 40
    3
                         q = 30
    2
                  ...
Decreasing Returns to
       Scale
A              Capital                   A
 Capital
per week                                     per week

    4          ...
Increasing Returns to
        Scale
Capital
per week
                                 A



     K2                          q2


     K1                     q...
Technical Change
  Capital
per week

       K1




       K0

                       A
                                   ...
Next Time
     Costs
Do 7.1, 7.2, 7.7
Read Chapter 8
EC4004 Lecture 9
   Production




            Dr Stephen Kinsella
EC4004 2008 Lecture 9 Production
EC4004 2008 Lecture 9 Production
EC4004 2008 Lecture 9 Production
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EC4004 2008 Lecture 9 Production

  1. 1. EC4004 Lecture 9 Production Dr Stephen Kinsella
  2. 2. Last Time
  3. 3. Game Theory
  4. 4. {Players, Strategies, Payoffs} Nash Eqm, Subgame Perf . Eqm Backward Induction Prisoner’s Dilemma Matching Pennies Battle of Sexes
  5. 5. Production.
  6. 6. ?
  7. 7. Production Function
  8. 8. production function, a mathematical relationship between inputs and outputs.
  9. 9. Combine Capital
  10. 10. Combine Capital
  11. 11. Combine Capital
  12. 12. Combine Capital and Labour
  13. 13. Combine Capital and Labour to produce output
  14. 14. q :output of a particular good during a period, K: capital used L: labour input M: raw materials
  15. 15. Marginal Products
  16. 16. Diminishing Marginal Product
  17. 17. Relationship between Output and Labour Inputs Holding Other Inputs Constant Output Total per week Output (a) Total output L* Labor input MPL per week L* (b) Marginal product Labor input per week
  18. 18. Isoquant Maps
  19. 19. Capital per week KA A KB B q = 10 Labour 0 LA LB per week
  20. 20. Capital per week KA A q = 30 q = 20 KB B q = 10 Labour 0 LA LB per week
  21. 21. Rate of Technical Substitution
  22. 22. The RTS and Marginal Products
  23. 23. Demo
  24. 24. Remember: Diminishing Marginal Utility, Indifference Curves, Marginal Rate of Substitution
  25. 25. Constant Returns to Scale
  26. 26. A Capital per week 4 q = 40 3 q = 30 2 q = 20 1 q = 10 0 1 2 3 4 Labor per week (a) Constant Returns to Scale
  27. 27. Decreasing Returns to Scale
  28. 28. A Capital A Capital per week per week 4 4 q = 40 3 3 q = 30 q = 30 2 2 q = 20 q = 20 1 1 q = 10 q = 10 Labor Labor 0 1 2 3 4 per week 0 1 2 3 4 per week (a) Constant Returns to Scale (b) Decreasing Returns to Scale
  29. 29. Increasing Returns to Scale
  30. 30. Capital per week A K2 q2 K1 q1 K0 q0 Labor 0 L0 L1 L2 per week
  31. 31. Technical Change Capital per week K1 K0 A q0 q’0 Labor 0 L1 L0 per week
  32. 32. Next Time Costs Do 7.1, 7.2, 7.7 Read Chapter 8
  33. 33. EC4004 Lecture 9 Production Dr Stephen Kinsella

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