The document discusses production decisions made by firms. It covers the technology of production using production functions to show output levels from different input combinations. It also discusses production with one variable input (labor) and how marginal product and average product change with increasing labor input. Finally, it discusses production with two variable inputs (labor and capital), using isoquants to show input combinations that produce the same output level and concepts like marginal rate of technical substitution and returns to scale.
This document discusses production functions and the law of diminishing returns. It begins by defining production as the process of transforming resources into goods or services using inputs like land, labor, capital and entrepreneurship. It then discusses short-run and long-run production functions. The short-run production function treats one input like capital as fixed and analyzes how output changes with varying levels of the variable input, labor. It demonstrates diminishing marginal returns to labor through a hypothetical example. The long-run production function considers how output changes with two variable inputs, capital and labor, as demonstrated using the Cobb-Douglas production function.
The document discusses key concepts related to production theory and cost analysis. It defines production as transforming inputs into outputs. Inputs can be fixed or variable, and production functions are classified as short-run or long-run depending on whether inputs are fixed or variable. The law of diminishing returns and returns to scale are explained. Cost concepts like total, average, fixed and variable costs are introduced. Break-even analysis is defined as a technique to understand the relationship between sales, costs and profits. Key assumptions and applications of break-even analysis are also outlined.
The document discusses key concepts in production theory including:
- Marginal product and diminishing returns, where adding more of a variable input like labor leads to lower increases in total output after a certain point.
- Isoquants and isocosts, which represent combinations of inputs that produce the same output level or can be purchased with a given budget.
- Returns to scale, measuring how output changes relative to proportional changes in all inputs, with cases of increasing, constant, and decreasing returns.
- The production function and its stages of increasing, then diminishing, and eventually negative returns as inputs are added without limit.
This document provides an overview of production theory and costs. It defines production as the process of converting inputs into outputs. The relationship between inputs and outputs is represented by the production function. There are laws of variable proportions that describe how average and marginal productivity change with increasing input usage in the short-run. In the long-run, returns to scale can be increasing, constant, or decreasing. The document also defines different types of costs including fixed, variable, average, and marginal costs and how they change with output levels in the short-run.
This unit discusses the theory of production. It defines production as converting resources into outputs that satisfy human wants. The key factors of production are land, labor, capital, and entrepreneurship. The production function shows the relationship between inputs like capital and labor, and the quantity of output produced. There are laws of variable proportions and returns to scale. Production optimization involves finding the least-cost combination of inputs using isoquants and isocost lines, where the tangency point indicates the producer's equilibrium.
Isoquants represent combinations of inputs that produce the same level of output. They have several key properties:
1. Isoquants slope downward, meaning more of one input requires less of the other to maintain output.
2. They are convex to the origin, due to decreasing marginal rates of technical substitution between inputs as one is increased relative to the other.
3. Isoquants never intersect, as that would represent one combination producing two output levels. Higher isoquants correspond to higher output levels.
- The document discusses production functions and costs from the perspective of a business. It defines key concepts like total product (TP), marginal product (MP), average product (AP), and marginal product of labor (MPL).
- TP is the total quantity of output produced, which initially increases with additional labor but eventually declines due to decreasing marginal returns. MP is the change in output from an additional unit of input.
- AP is output per unit of input and increases when MP exceeds AP, decreases when MP is less than AP, and peaks when MP equals AP. The discussion provides examples showing the relationships between these concepts.
Theory of production describes the relationship between inputs and outputs in the production process. A production function defines this relationship mathematically. In the short run, some inputs are fixed while others are variable. As the variable input increases, total output initially increases at an increasing rate (stage 1), then at a decreasing rate (stage 2), and eventually decreases (stage 3), following the law of variable proportions. In the long run, all inputs are variable. If all inputs increase proportionately, we can see increasing, constant, or decreasing returns to scale. Isoquants show the combinations of inputs that produce the same output level.
This document discusses production functions and the law of diminishing returns. It begins by defining production as the process of transforming resources into goods or services using inputs like land, labor, capital and entrepreneurship. It then discusses short-run and long-run production functions. The short-run production function treats one input like capital as fixed and analyzes how output changes with varying levels of the variable input, labor. It demonstrates diminishing marginal returns to labor through a hypothetical example. The long-run production function considers how output changes with two variable inputs, capital and labor, as demonstrated using the Cobb-Douglas production function.
The document discusses key concepts related to production theory and cost analysis. It defines production as transforming inputs into outputs. Inputs can be fixed or variable, and production functions are classified as short-run or long-run depending on whether inputs are fixed or variable. The law of diminishing returns and returns to scale are explained. Cost concepts like total, average, fixed and variable costs are introduced. Break-even analysis is defined as a technique to understand the relationship between sales, costs and profits. Key assumptions and applications of break-even analysis are also outlined.
The document discusses key concepts in production theory including:
- Marginal product and diminishing returns, where adding more of a variable input like labor leads to lower increases in total output after a certain point.
- Isoquants and isocosts, which represent combinations of inputs that produce the same output level or can be purchased with a given budget.
- Returns to scale, measuring how output changes relative to proportional changes in all inputs, with cases of increasing, constant, and decreasing returns.
- The production function and its stages of increasing, then diminishing, and eventually negative returns as inputs are added without limit.
This document provides an overview of production theory and costs. It defines production as the process of converting inputs into outputs. The relationship between inputs and outputs is represented by the production function. There are laws of variable proportions that describe how average and marginal productivity change with increasing input usage in the short-run. In the long-run, returns to scale can be increasing, constant, or decreasing. The document also defines different types of costs including fixed, variable, average, and marginal costs and how they change with output levels in the short-run.
This unit discusses the theory of production. It defines production as converting resources into outputs that satisfy human wants. The key factors of production are land, labor, capital, and entrepreneurship. The production function shows the relationship between inputs like capital and labor, and the quantity of output produced. There are laws of variable proportions and returns to scale. Production optimization involves finding the least-cost combination of inputs using isoquants and isocost lines, where the tangency point indicates the producer's equilibrium.
Isoquants represent combinations of inputs that produce the same level of output. They have several key properties:
1. Isoquants slope downward, meaning more of one input requires less of the other to maintain output.
2. They are convex to the origin, due to decreasing marginal rates of technical substitution between inputs as one is increased relative to the other.
3. Isoquants never intersect, as that would represent one combination producing two output levels. Higher isoquants correspond to higher output levels.
- The document discusses production functions and costs from the perspective of a business. It defines key concepts like total product (TP), marginal product (MP), average product (AP), and marginal product of labor (MPL).
- TP is the total quantity of output produced, which initially increases with additional labor but eventually declines due to decreasing marginal returns. MP is the change in output from an additional unit of input.
- AP is output per unit of input and increases when MP exceeds AP, decreases when MP is less than AP, and peaks when MP equals AP. The discussion provides examples showing the relationships between these concepts.
Theory of production describes the relationship between inputs and outputs in the production process. A production function defines this relationship mathematically. In the short run, some inputs are fixed while others are variable. As the variable input increases, total output initially increases at an increasing rate (stage 1), then at a decreasing rate (stage 2), and eventually decreases (stage 3), following the law of variable proportions. In the long run, all inputs are variable. If all inputs increase proportionately, we can see increasing, constant, or decreasing returns to scale. Isoquants show the combinations of inputs that produce the same output level.
production function with 2 variable inputs return to scaleNabil Ashraf
This document discusses production functions and isoquants. It defines a production function as a relationship between inputs like labor, capital, materials and time, and the output they produce. Isoquants represent combinations of two inputs that produce the same output amount. The key properties of isoquants are that they have a negative slope, are convex, do not intersect, and higher isoquants represent more output. The slope of the isoquant indicates the rate of technical substitution between inputs. The shape and spacing of isoquants can also show if a production process exhibits increasing, decreasing, or constant returns to scale.
This document discusses key concepts related to production analysis including:
1. It defines production as the process of transforming inputs into outputs and describes a production function as the relationship between inputs and outputs.
2. It outlines short run, long run, and very long run periods and explains factors of production, total product, average product, and marginal product.
3. It describes the three stages of production - increasing, constant, and diminishing returns - and the law of diminishing marginal returns as it relates to a variable input factor.
This document discusses production analysis and the theory of production costs from the perspective of a firm. It covers key concepts such as:
- The three stages of production as defined by total, average, and marginal product curves. In stage one, average product is increasing. In stage two, average product is decreasing while marginal product turns negative in stage three.
- Laws of variable proportions which state that as a variable input increases, total product initially increases at an increasing rate, then at a decreasing rate, due to diminishing marginal returns.
- Long run production functions which consider all inputs as variable. Returns to scale can be increasing, constant, or diminishing based on how total output responds to a proportional increase
Costs Of Production Micro Economics ECO101Sabih Kamran
This document discusses the costs of production for a firm. It begins by defining a firm and its goal of profit maximization. It explains that a firm faces constraints from technology, information, and markets. It also discusses the five basic decisions a firm must make: what and how much to produce, how to produce, how to organize workers, how to market and price products, and what to produce internally vs externally.
The document then explains the differences between short-run and long-run time frames. In the short-run, capital is fixed while variable inputs can change, while in the long-run all inputs are variable. It introduces the concepts of total, average, and marginal costs. Finally, it discusses how
Lecture slides for an undergraduate course on Basic Macroeconomics that I taught in the Fall of 2007.
This lecture introduces national income accounts.
Consumer Behavior: Income and Substitution Effects
The Consumer’s Reaction to a Change in Income
Engel Curve or Engel’s Law
The Consumer’s Reaction to a Change in Price
The Consumer’s Demand Function
Cobb-Douglas Utility Function
The Slutsky Substitution Effect
The Hicks substitution effect
Production function refers to the relationship between inputs used in production and the resulting outputs. It shows the technical relationship between inputs like labor, capital, land, and enterprise and the quantity of output.
There are short run and long run production functions. Short run production functions consider variable inputs while long run considers all inputs as variable.
Total, average, and marginal production are key concepts. Total production is the total output. Average production is output per unit of input. Marginal production is the change in output from a change in input.
There are laws like diminishing returns and returns to scale. Diminishing returns states that adding more of a variable input on fixed inputs initially increases output, then at a decreasing
The Cobb-Douglas production function is widely used to model the relationship between output and two inputs, labor and capital. It takes the form of P(L,K) = B*L^α*K^β, where P is total production, L is labor input, K is capital input, B is total factor productivity, and α and β are output elasticities. The function was formulated by Cobb and Douglas based on statistical evidence showing how U.S. output and the two inputs changed together from 1889-1920. It has since been widely applied despite some criticisms around its lack of microeconomic foundations.
The document discusses production theory, which forms the foundation of supply theory. It covers key concepts such as:
1) Short-run vs long-run production and the fixed and variable nature of inputs.
2) Production functions and the relationship between total, average, and marginal product.
3) The law of diminishing marginal returns and the three stages of production.
4) Isoquants, isocost lines, and how firms determine optimal input combinations to minimize costs.
The document discusses different types of costs firms face in both the short run and long run. It defines explicit costs as actual cash payments and implicit costs as opportunity costs. In the short run, some resources are fixed while others are variable. As more of the variable input is added, marginal product initially increases but eventually declines due to diminishing returns. In the long run, all inputs are variable and firms can choose different plant sizes, leading to economies or diseconomies of scale.
A firm maximizes profit by producing at the quantity where marginal revenue equals marginal cost. This occurs because:
1) Marginal revenue is the change in total revenue from selling one more unit, while marginal cost is the change in total cost from producing one more unit.
2) When marginal revenue exceeds marginal cost, the firm can increase profits by producing more units. But when marginal cost exceeds marginal revenue, profits decrease with additional production.
3) Therefore, profit is maximized at the quantity where the two margins are equal, as additional production beyond this point leads to losses rather than gains.
Theory of consumer behavior cardinal approachTej Kiran
This document discusses consumer behavior theory and how consumers make choices under income constraints. It explains that consumers seek to maximize their utility, or satisfaction, from consuming goods and services. Utility is defined as the pleasure or satisfaction derived from consumption. Consumers are constrained by their incomes and must make choices within these limits. The concepts of total utility, marginal utility, diminishing marginal utility, and how consumers allocate their budgets to maximize utility are introduced. Cardinal and ordinal approaches to measuring utility are also outlined. The document provides examples and explanations of the law of diminishing marginal utility and the principle of equimarginal utility as consumers seek to optimize their satisfaction from consumption.
A market can be defined as a group of firms willing and able to sell a similar product or service to the same potential buyers.
Imperfect competition covers all situations where there is neither pure competition nor pure monopoly.
Perfect competition and pure monopoly are very unlikely to be found in the real world.
In the real world, it is the imperfect competition lying between perfect competition and pure monopoly.
The fundamental distinguishing characteristic of imperfect competition is that average revenue curve slopes downwards throughout its length, but it slopes downwards at different rates in different categories of imperfect competition.
Monopoly refers to the market situation where there is a
Single seller selling a product which has no close substitutes.
Monopolies are characterized by a lack of economic competition to produce the good or service, a lack of viable substitute goods, and the existence of a high monopoly price well above the firm's marginal cost that leads to a high monopoly profit
The word “oligopoly” comes from the Greek “oligos” meaning "little or small” and “polein” meaning “to sell.” When “oligos” is used in the plural, it means “few” ,few firms or few sellers.
DEFINATION:
Oligopoly is that form of market where there are few firms and there is natural interdependence among the firms regarding price and output policy.
This document discusses production and production functions. It defines production as the process of transforming inputs like land, labor, and capital into outputs. A production function represents the relationship between inputs used in production and the maximum output possible. There are two types of production functions: one that considers only variable inputs in the short-run, and one that considers all inputs in the long-run. The document outlines the stages and graphical representations of the laws of variable proportions and returns to scale.
This document discusses key concepts related to production and costs. It defines the four factors of production as land, labor, capital, and entrepreneurship. It explains the differences between short-run and long-run production and explores production functions and schedules. The document also covers total, marginal, and average products as well as the law of diminishing returns. Finally, it discusses different cost concepts including fixed costs, variable costs, total costs, and average and marginal costs.
The document discusses market structures, specifically perfect competition. It defines key characteristics of perfect competition including a large number of small firms, homogeneous products, free entry and exit, and firms being price takers. Under perfect competition, each firm's demand curve is perfectly elastic and marginal revenue equals price. Firms produce where price equals marginal cost to maximize profits. In the long run, normal profits are achieved as entry and exit cause supply to equal demand. Perfect competition leads to allocative and productive efficiency.
Profit maximization and perfect competitionjaveria gul
1) A firm produces at the quantity where marginal revenue equals marginal cost to maximize profits. This is the point where additional revenue from producing another unit equals the additional costs.
2) A firm's profit is maximized by producing at the output level where marginal revenue equals marginal cost. Producing more would mean marginal costs exceed marginal revenues, reducing profits.
3) In the short run, a competitive firm will produce the quantity where marginal revenue equals marginal cost to maximize profits. The firm's profit is represented by the rectangle between average total cost and marginal cost at the profit-maximizing quantity.
The document summarizes Keynesian income determination through the aggregate demand-aggregate supply model. It defines consumption and investment functions, which together determine aggregate demand. Consumption depends on income through the marginal propensity to consume. Investment is assumed constant in the short-run. Equilibrium income is reached at the point where aggregate demand equals aggregate supply. This can be modeled as either the AD-AS approach where equilibrium Y satisfies C+I=C+S, or the savings-investment approach where I=S. Numerical examples are provided to illustrate the equilibrium income calculation under each approach.
Cost refers to the total expenditure incurred by a producer to produce a given level of output. It includes explicit costs, which are cash payments to factors of production, and implicit costs, which are imputed costs of self-owned resources. Total cost is the sum of fixed costs, which do not vary with output, and variable costs, which do vary with output. Marginal cost is the change in total cost from producing one additional unit of output. It is U-shaped, initially decreasing and then increasing, reflecting the law of variable proportions. Average cost is total cost divided by output and is the sum of average fixed cost and average variable cost.
This document discusses production decisions made by firms. It covers:
1. A firm's production technology can be represented by a production function that shows how inputs like labor and capital can be transformed into outputs.
2. In the short run, a firm may vary only one input like labor while capital is fixed, facing diminishing marginal returns.
3. In the long run, a firm can vary both inputs and their combinations are shown on isoquants maps, with marginal rate of technical substitution measuring the tradeoff between inputs.
4. Returns to scale describes how output changes when all inputs are increased proportionately, with possibilities being increasing, constant, or decreasing.
1. Firms combine inputs to produce outputs in order to make a profit. They face production decisions like how much to produce and which production methods to use.
2. In perfect competition, firms are price takers and face homogeneous goods and many competitors. They produce at the minimum of average total cost to maximize profits.
3. A firm's production function shows the relationship between inputs like labor and capital, and total output. It exhibits diminishing marginal returns as more inputs are added.
production function with 2 variable inputs return to scaleNabil Ashraf
This document discusses production functions and isoquants. It defines a production function as a relationship between inputs like labor, capital, materials and time, and the output they produce. Isoquants represent combinations of two inputs that produce the same output amount. The key properties of isoquants are that they have a negative slope, are convex, do not intersect, and higher isoquants represent more output. The slope of the isoquant indicates the rate of technical substitution between inputs. The shape and spacing of isoquants can also show if a production process exhibits increasing, decreasing, or constant returns to scale.
This document discusses key concepts related to production analysis including:
1. It defines production as the process of transforming inputs into outputs and describes a production function as the relationship between inputs and outputs.
2. It outlines short run, long run, and very long run periods and explains factors of production, total product, average product, and marginal product.
3. It describes the three stages of production - increasing, constant, and diminishing returns - and the law of diminishing marginal returns as it relates to a variable input factor.
This document discusses production analysis and the theory of production costs from the perspective of a firm. It covers key concepts such as:
- The three stages of production as defined by total, average, and marginal product curves. In stage one, average product is increasing. In stage two, average product is decreasing while marginal product turns negative in stage three.
- Laws of variable proportions which state that as a variable input increases, total product initially increases at an increasing rate, then at a decreasing rate, due to diminishing marginal returns.
- Long run production functions which consider all inputs as variable. Returns to scale can be increasing, constant, or diminishing based on how total output responds to a proportional increase
Costs Of Production Micro Economics ECO101Sabih Kamran
This document discusses the costs of production for a firm. It begins by defining a firm and its goal of profit maximization. It explains that a firm faces constraints from technology, information, and markets. It also discusses the five basic decisions a firm must make: what and how much to produce, how to produce, how to organize workers, how to market and price products, and what to produce internally vs externally.
The document then explains the differences between short-run and long-run time frames. In the short-run, capital is fixed while variable inputs can change, while in the long-run all inputs are variable. It introduces the concepts of total, average, and marginal costs. Finally, it discusses how
Lecture slides for an undergraduate course on Basic Macroeconomics that I taught in the Fall of 2007.
This lecture introduces national income accounts.
Consumer Behavior: Income and Substitution Effects
The Consumer’s Reaction to a Change in Income
Engel Curve or Engel’s Law
The Consumer’s Reaction to a Change in Price
The Consumer’s Demand Function
Cobb-Douglas Utility Function
The Slutsky Substitution Effect
The Hicks substitution effect
Production function refers to the relationship between inputs used in production and the resulting outputs. It shows the technical relationship between inputs like labor, capital, land, and enterprise and the quantity of output.
There are short run and long run production functions. Short run production functions consider variable inputs while long run considers all inputs as variable.
Total, average, and marginal production are key concepts. Total production is the total output. Average production is output per unit of input. Marginal production is the change in output from a change in input.
There are laws like diminishing returns and returns to scale. Diminishing returns states that adding more of a variable input on fixed inputs initially increases output, then at a decreasing
The Cobb-Douglas production function is widely used to model the relationship between output and two inputs, labor and capital. It takes the form of P(L,K) = B*L^α*K^β, where P is total production, L is labor input, K is capital input, B is total factor productivity, and α and β are output elasticities. The function was formulated by Cobb and Douglas based on statistical evidence showing how U.S. output and the two inputs changed together from 1889-1920. It has since been widely applied despite some criticisms around its lack of microeconomic foundations.
The document discusses production theory, which forms the foundation of supply theory. It covers key concepts such as:
1) Short-run vs long-run production and the fixed and variable nature of inputs.
2) Production functions and the relationship between total, average, and marginal product.
3) The law of diminishing marginal returns and the three stages of production.
4) Isoquants, isocost lines, and how firms determine optimal input combinations to minimize costs.
The document discusses different types of costs firms face in both the short run and long run. It defines explicit costs as actual cash payments and implicit costs as opportunity costs. In the short run, some resources are fixed while others are variable. As more of the variable input is added, marginal product initially increases but eventually declines due to diminishing returns. In the long run, all inputs are variable and firms can choose different plant sizes, leading to economies or diseconomies of scale.
A firm maximizes profit by producing at the quantity where marginal revenue equals marginal cost. This occurs because:
1) Marginal revenue is the change in total revenue from selling one more unit, while marginal cost is the change in total cost from producing one more unit.
2) When marginal revenue exceeds marginal cost, the firm can increase profits by producing more units. But when marginal cost exceeds marginal revenue, profits decrease with additional production.
3) Therefore, profit is maximized at the quantity where the two margins are equal, as additional production beyond this point leads to losses rather than gains.
Theory of consumer behavior cardinal approachTej Kiran
This document discusses consumer behavior theory and how consumers make choices under income constraints. It explains that consumers seek to maximize their utility, or satisfaction, from consuming goods and services. Utility is defined as the pleasure or satisfaction derived from consumption. Consumers are constrained by their incomes and must make choices within these limits. The concepts of total utility, marginal utility, diminishing marginal utility, and how consumers allocate their budgets to maximize utility are introduced. Cardinal and ordinal approaches to measuring utility are also outlined. The document provides examples and explanations of the law of diminishing marginal utility and the principle of equimarginal utility as consumers seek to optimize their satisfaction from consumption.
A market can be defined as a group of firms willing and able to sell a similar product or service to the same potential buyers.
Imperfect competition covers all situations where there is neither pure competition nor pure monopoly.
Perfect competition and pure monopoly are very unlikely to be found in the real world.
In the real world, it is the imperfect competition lying between perfect competition and pure monopoly.
The fundamental distinguishing characteristic of imperfect competition is that average revenue curve slopes downwards throughout its length, but it slopes downwards at different rates in different categories of imperfect competition.
Monopoly refers to the market situation where there is a
Single seller selling a product which has no close substitutes.
Monopolies are characterized by a lack of economic competition to produce the good or service, a lack of viable substitute goods, and the existence of a high monopoly price well above the firm's marginal cost that leads to a high monopoly profit
The word “oligopoly” comes from the Greek “oligos” meaning "little or small” and “polein” meaning “to sell.” When “oligos” is used in the plural, it means “few” ,few firms or few sellers.
DEFINATION:
Oligopoly is that form of market where there are few firms and there is natural interdependence among the firms regarding price and output policy.
This document discusses production and production functions. It defines production as the process of transforming inputs like land, labor, and capital into outputs. A production function represents the relationship between inputs used in production and the maximum output possible. There are two types of production functions: one that considers only variable inputs in the short-run, and one that considers all inputs in the long-run. The document outlines the stages and graphical representations of the laws of variable proportions and returns to scale.
This document discusses key concepts related to production and costs. It defines the four factors of production as land, labor, capital, and entrepreneurship. It explains the differences between short-run and long-run production and explores production functions and schedules. The document also covers total, marginal, and average products as well as the law of diminishing returns. Finally, it discusses different cost concepts including fixed costs, variable costs, total costs, and average and marginal costs.
The document discusses market structures, specifically perfect competition. It defines key characteristics of perfect competition including a large number of small firms, homogeneous products, free entry and exit, and firms being price takers. Under perfect competition, each firm's demand curve is perfectly elastic and marginal revenue equals price. Firms produce where price equals marginal cost to maximize profits. In the long run, normal profits are achieved as entry and exit cause supply to equal demand. Perfect competition leads to allocative and productive efficiency.
Profit maximization and perfect competitionjaveria gul
1) A firm produces at the quantity where marginal revenue equals marginal cost to maximize profits. This is the point where additional revenue from producing another unit equals the additional costs.
2) A firm's profit is maximized by producing at the output level where marginal revenue equals marginal cost. Producing more would mean marginal costs exceed marginal revenues, reducing profits.
3) In the short run, a competitive firm will produce the quantity where marginal revenue equals marginal cost to maximize profits. The firm's profit is represented by the rectangle between average total cost and marginal cost at the profit-maximizing quantity.
The document summarizes Keynesian income determination through the aggregate demand-aggregate supply model. It defines consumption and investment functions, which together determine aggregate demand. Consumption depends on income through the marginal propensity to consume. Investment is assumed constant in the short-run. Equilibrium income is reached at the point where aggregate demand equals aggregate supply. This can be modeled as either the AD-AS approach where equilibrium Y satisfies C+I=C+S, or the savings-investment approach where I=S. Numerical examples are provided to illustrate the equilibrium income calculation under each approach.
Cost refers to the total expenditure incurred by a producer to produce a given level of output. It includes explicit costs, which are cash payments to factors of production, and implicit costs, which are imputed costs of self-owned resources. Total cost is the sum of fixed costs, which do not vary with output, and variable costs, which do vary with output. Marginal cost is the change in total cost from producing one additional unit of output. It is U-shaped, initially decreasing and then increasing, reflecting the law of variable proportions. Average cost is total cost divided by output and is the sum of average fixed cost and average variable cost.
This document discusses production decisions made by firms. It covers:
1. A firm's production technology can be represented by a production function that shows how inputs like labor and capital can be transformed into outputs.
2. In the short run, a firm may vary only one input like labor while capital is fixed, facing diminishing marginal returns.
3. In the long run, a firm can vary both inputs and their combinations are shown on isoquants maps, with marginal rate of technical substitution measuring the tradeoff between inputs.
4. Returns to scale describes how output changes when all inputs are increased proportionately, with possibilities being increasing, constant, or decreasing.
1. Firms combine inputs to produce outputs in order to make a profit. They face production decisions like how much to produce and which production methods to use.
2. In perfect competition, firms are price takers and face homogeneous goods and many competitors. They produce at the minimum of average total cost to maximize profits.
3. A firm's production function shows the relationship between inputs like labor and capital, and total output. It exhibits diminishing marginal returns as more inputs are added.
This document discusses the production process and behavior of profit-maximizing firms. It covers key topics such as the definition of a firm, production functions, total product, marginal product, average product, and the law of diminishing returns. It also discusses isoquants/indifference curves and how firms determine optimal input combinations to minimize costs or maximize output. Firms make decisions about inputs, technology, and output levels based on market prices to maximize profits in both the short-run and long-run.
This document discusses production functions and costs. It defines key concepts such as:
- Production functions show the relationship between inputs and maximum possible output. Short run production is fixed capital while variable inputs can change. Long run all inputs can vary.
- Cost concepts include total, average, and marginal costs. Total cost is the sum of total fixed and variable costs. Marginal cost is the change in total cost from a one unit change in output.
- Cost curves are U-shaped as average and marginal costs initially fall then rise due to diminishing returns. Minimum points indicate optimal output levels for firms.
This document provides an overview of production processes and profit-maximizing behavior of firms. It discusses key concepts including the production function, total product, marginal product, average product, choice of technology, isoquants, isocosts, and how firms determine their cost-minimizing production method. The document also distinguishes between short-run and long-run decisions and explains how firms make output, technology, and input demand decisions to maximize profits.
This document defines production and costs of production. It discusses:
- Factors of production including land, labor, capital and entrepreneurship.
- Production functions showing the relationship between inputs and outputs.
- The law of diminishing marginal returns and how it impacts total, average and marginal product.
- Short and long run production functions and the law of returns to scale.
- Cost concepts including explicit, implicit, opportunity and social costs.
- Cost curves including total, average and marginal costs in the short and long run.
- Economies of scale and how costs are impacted by scale of production.
The document discusses key concepts in production theory and the theory of the firm. It explains the production function and how output responds to changes in variable inputs. It also discusses costs like fixed, variable, marginal and sunk costs. The document covers revenue, profit maximization, and how firms can grow through reinvestment of profits or mergers and acquisitions.
The document discusses production theory and the factors involved in the production process. It defines production as the transformation of inputs like land, labor, capital and entrepreneurship into goods and services. It describes the different types of inputs, factors of production, production functions, laws of returns, and concepts like technical progress. Production involves combining inputs using technology to produce maximum possible output given the inputs and technology.
This document discusses key concepts in production including inputs, outputs, short run vs long run, production functions, total product, average product, marginal product, and the law of diminishing returns. It also covers stages of production, isoquants, marginal rate of technical substitution, optimal input combinations, returns to scale, economies and diseconomies of scale, and economies of scope. Production involves transforming inputs into outputs using a production function, with fixed and variable inputs determining the short and long run. The law of diminishing returns causes marginal product to decline with increased use of a variable input.
This document discusses production functions and the economics of production. It begins by defining key terms like production function, total product, average product, and marginal product. It then examines a production function with one variable input (labor) and a fixed input (machine tools). As labor is increased, the total, average, and marginal products are calculated. This leads to three stages of production: stage 1 where marginal product and average product are both increasing, stage 2 where marginal product is positive but average product is constant, and stage 3 where marginal product is negative. The law of diminishing marginal returns is also explained.
Unit - IV discusses production functions and the laws of production. It explains that a production function shows the relationship between inputs like labor, capital, land and the output produced. The laws of variable proportions and returns to scale are then covered. The law of variable proportions explains how output changes when one input is varied while others stay fixed. Returns to scale looks at what happens to output when all inputs change proportionately. Economies and diseconomies of scale are also discussed.
Productivity Measurement, Types with solved Examples.pptxE Concepts
https://youtu.be/PkDzr7hMltA
Watch the full explanation of this lecture in Hindi/Urdu via the above link.
This PowerPoint explains the topic of productivity with basic concepts, it's types, and measuring methods with examples.
Economic theory of production and production costEllen Pineda
The document discusses economic theory of production and production costs. It defines a firm as an entity that buys inputs, converts them into outputs, and sells the outputs. A firm operates between input and output markets. The production function defines the maximum output achievable from given inputs. Total cost is derived from the production function and includes fixed, variable, marginal, and average costs. Firms aim to minimize costs and equalize marginal productivity across inputs in both the short and long run to produce at the lowest possible cost.
This document provides an overview of key economic concepts related to the price system and theory of the firm. It covers topics such as demand and supply, costs of production, market structures, and profit maximization. Several examples and exercises are provided to illustrate key points. The document is intended as a supplemental guide for students taking an A-Level Economics course. It defines important terminology and uses graphs and data to explain fundamental economic principles in the subject areas.
CH 4 The Theory of Production and Cost.pptxDawitHaile12
This chapter discusses production theory and cost theory in the short run. It defines key concepts such as production function, fixed and variable inputs, total product, average product and marginal product. It explains the three stages of production in the short run based on the law of diminishing returns. It also defines total, average and marginal costs, and describes how they change with output based on the total, average and marginal cost curves. Finally, it discusses the relationship between short run production functions and cost functions.
The document discusses production functions and the relationship between total, average, and marginal product as the quantity of a variable input is changed. It defines fixed and variable inputs and describes the three stages of production - increasing, diminishing, and negative returns. Factors of production include land, labor, capital, machinery, raw materials, and power.
Eco 101 - The producers theory is concerned with the behavior of firms in hiring and combining productive inputs to supply commodities at appropriate prices.The theory of production is based on the "short run" or a period of production that allows production to change the amount of variable input, in this case, labor. The "long run" is a period of production that is long enough for producers to adjust various inputs to analyze the best mix of the factors of production.
The document discusses the concepts of supply, production, and costs. It defines supply as the quantity of a good or service a firm is willing to provide at different prices. The law of supply states that quantity supplied increases with price. A supply schedule and curve illustrate the relationship between price and quantity supplied. Production functions show the relationship between inputs like labor and outputs. There are stages of increasing, decreasing, and negative marginal product as more inputs are added. The document also defines fixed and variable costs, and different types of costs businesses consider like total, average, and marginal costs.
Similar to Production in Managerial Economics (20)
The document provides a business plan for a company that produces Ragi biscuits. Some key points:
1) The company was founded in 2017 by alumni from an institute to produce millet biscuits. Ragi biscuits are particularly popular due to their high nutrition and benefits for children and diabetics.
2) Ragi biscuits are gluten-free and high in fiber, making them suitable for diabetes and weight control. They are priced at Rs. 15 for a pack of 12 and Rs. 5 for a pack of 4.
3) The plan is to expand distribution from Karnataka throughout India and position the company as a leading biscuit maker, focusing on health benefits.
The document proposes a health loan product to address the lack of affordable healthcare for the poor. Key points:
- Illness often forces poor households into poverty due to healthcare costs under the "cash-and-carry" model that excludes the poor.
- A health loan would allow the poor to access treatment when needed without pre-installments, unlike health insurance.
- The loan is meant as a stop-gap, not a long-term solution, but could help pay previous loans and increase awareness of healthcare options over time.
- Features would include loans of Rs. 1,000-10,000 for existing customers for emergencies like childbirth or minor surgeries.
1) The document summarizes a study on potato and chili cultivation practices in Uttar Pradesh, India. It analyzes the package of practices including variety used, soil type, seed rate, irrigation, nutrients, pest and disease management, and yield for potato in Agra and Farrukhabad districts.
2) The major findings are that the most common potato variety grown is 3797 (Kufri Bahar), which has high yield and disease resistance. The predominant soil type is loam soil. Common pests include aphids and diseases include scab and blight.
3) The study found that most farmers use similar cultivation practices and rely heavily on the fungicide Monceren to
Wine has been produced in India for over 5,000 years. India produces both red and white wines. While wine consumption in India is growing, it is still relatively low compared to major wine producing countries such as France, Italy, Spain, and the US. Most wine consumption in India is confined to major cities like Mumbai, Delhi, Bangalore, and Goa. The document then provides descriptions of different grape varieties used to make popular red, white, sparkling, and dessert wines and notes what types of food they typically pair well with. It concludes by listing two wine recommendations.
India is the 6th largest producer of coffee in the world, producing around 317,000 tonnes annually. Coffee production is concentrated in the states of Karnataka, Kerala, and Tamil Nadu. India produces mild, shade-grown Arabica and Robusta coffee varieties. While coffee production and exports have increased in recent years, the industry faces challenges such as rising production costs, declining coffee quality, pest infestation, and price fluctuations in the global market. Domestic coffee consumption is also growing and estimated at over 1 lakh tonnes annually.
The key steps in wine production are harvesting grapes, destemming and crushing the grapes to extract juice, fermenting the juice into wine using yeast, and aging the wine in oak barrels or stainless steel tanks. Additional steps include bottling the aged wine and mixing batches as needed to achieve the desired taste before bottling and sealing. Equipment used includes rolling mills, mashers, hop-boilers, filters, pre-coolers, fermenters, and facilities for maturation and filtering.
India is the third largest producer and fourth largest consumer of natural rubber in the world. The automotive tire sector accounts for 50% of India's rubber consumption. The document discusses the various stages of rubber production including latex collection, processing, and different marketable forms. The key types discussed are sheet rubber, crepe rubber, block rubber, and technically specified rubber which are used in various industries like tires, footwear, and medical products.
The document discusses various processed food products including canned, frozen, and dehydrated foods. It provides details on the nutritional content and benefits of canned fruits and vegetables as well as canned meat and fish products. It also describes the freezing and dehydration processes used to preserve foods and common frozen products like meat, seafood, and vegetables. Key companies involved in canned, frozen, and dehydrated foods in India are also mentioned.
This document defines and describes various candlestick patterns used in technical analysis of financial markets. Candlestick patterns include formations like doji lines, engulfing patterns, hammers, hanging men, harami, morning and evening stars, piercing patterns, and tweezers. Each formation has a specific structure involving the real body and shadows of one or more candlestick lines that indicate bullish or bearish reversals or continuations of the current trend.
The document discusses food parks and related concepts:
1. Food parks are promoted by the Ministry of Food Processing Industries to encourage corporations to establish common facilities like cold storage and warehouses for small and medium food processing units.
2. They must be a minimum of 30 acres with at least 20 processing units. Grants of 25-33% of the project cost are provided. 20-25% of losses can be minimized through food parks.
3. The concept of backward and forward linkages in food supply chains is introduced.
India's packaging industry has grown at 25% annually and may reach $5 billion this year. Worldwide, the packaging industry is $417 billion, led by Europe ($129 billion), North America ($116 billion), and Japan ($81 billion). Flexible packaging such as pouches and reclosable bags makes up 21% of the market. Aseptic packaging sterilizes foods and packaging separately then seals them to extend shelf life without refrigeration. Active and intelligent packaging uses oxygen absorbers, moisture absorbers, indicators, and barriers to further extend shelf life while maintaining safety and quality. Nano-packaging has applications in bakery and meat products. Vacuum packing, retort packaging, modified atmosphere packaging, and
This document discusses farmers' buying behavior towards maize hybrids. It outlines several factors that influence farmers' decisions, including land holding size, education level, soil type, irrigation type, desired seed parameters, and price. It also describes different types of decision making processes farmers may use, including complex, dissonance reducing, habitual, and variety seeking behaviors. Finally, it provides a consumer behavior model and outlines the seed purchase decision making process, concluding with suggestions like improving packaging, maintaining quality, promoting awareness programs, and developing new seed varieties.
The document discusses energy management and conservation in industrial processes. It notes that industrial sectors consume 50% of India's commercial energy and there is an estimated 25-30% potential for energy conservation. Common approaches to energy conservation include conducting energy audits, adopting new efficient technologies, improving capacity utilization, maintenance practices, and housekeeping. Preliminary energy audits focus on major energy supplies and demands, while detailed audits involve formal data collection, analysis, and testing over 1-10 weeks. Specific energy conservation measures for tea factories include reducing air leaks in furnaces and maintaining optimal furnace oil temperatures.
The document provides background information on a study being conducted by an intern student for Dhanuka Agritech Ltd. The study involves surveying farmers in Uttar Pradesh who grow potato and chili crops. Specifically, the intern will survey farmers in Agra and Farrukhabad districts for potato cultivation and Sonbhadra district for chili cultivation. The objectives are to study cultivation practices, critical stages, fungicide use including the company's products Conika and Lustre. The methodology involves a questionnaire and interviews with 180 farmers and 45 dealers across various villages in the target districts.
This document discusses vertical coordination in the Indian food supply chain. It notes that the Indian food market is highly fragmented with many intermediaries, increasing costs for farmers. Consolidation of the chain is suggested to reduce intermediaries and lower the gap between what farmers receive versus consumer prices. The document examines mechanisms for vertical coordination, including open markets, contract production, and vertical integration. It argues that transaction costs are lower through coordination mechanisms like contracts and integration, compared to spot markets. Specifically for India, constraints like land ownership laws limit vertical integration options for most commodities except poultry and dairy. Developing rural markets can help increase coordination in the food chain.
Rural marketing issues, opportunity and challengesMD SALMAN ANJUM
This document discusses the rural marketing landscape in India. It notes that the rural market has grown significantly, with over 740 million rural residents accounting for more than urban consumers. Key opportunities in rural marketing include low product penetration, growing incomes and expenditure among certain demographic segments. Challenges include reaching remote villages, increasing incomes overall, and making effective use of existing rural infrastructure. New forms of large-scale rural retail are emerging as corporates increase long-term commitments to rural areas through dedicated strategies and partnerships.
This document discusses the changing nature of rural livelihoods in India. It notes that while India's economy has grown, many rural areas still face poverty and food insecurity. Rural livelihoods increasingly rely on non-farm activities as agriculture alone often cannot support families. The document examines trends in agriculture, including a shift to cash crops over food crops, declining food intake, and threats to small farmers' livelihood security and food security. It argues for understanding rural livelihoods holistically rather than through any single lens.
1) The document discusses the debate around whether labour standards should be included in trade agreements. Supporters argue it prevents a "race to the bottom" in labour conditions, while critics argue it risks reducing developing countries' competitiveness.
2) The key organizations involved in this issue are the WTO, ILO, and labour unions. The WTO focuses on international trade but has faced challenges incorporating labour standards. The ILO is responsible for international labour standards and ensuring core rights are respected globally. Labour unions represent workers' interests within the debate.
3) There is currently no consensus on the extent these organizations should be involved in labour issues or how standards may interact with trade rules. Governments must balance economic and social
Rural markets in India are becoming increasingly important as more companies recognize their large potential. Rural consumers now have greater exposure to brands and products through television and are more literate about their options. Several FMCG companies have found success targeting rural consumers through strategies like smaller, affordable packaging and tying up with banks and self-help groups to improve distribution networks in villages. While income levels are lower in rural areas, the population is large and growing middle and high-income households in rural India are expected to double urban India's size, representing a major opportunity for companies able to effectively reach rural consumers.
This document attempts to differentiate between competence, capability, and capacity as they relate to innovation. It provides definitions for each term:
- Competence refers to an individual's knowledge and skills. It relates to the question "Who knows how?".
- Capability is a collaborative process through which competences can be applied and exploited to achieve goals. It relates to questions like "How can we get things done?" and "How easily can we access and apply the skills we need?".
- Capacity is about having enough resources or volume to accommodate needs. It relates to questions like "Do we have enough?" and "How much is needed?".
The document cautions against confusing these terms
SATTA MATKA DPBOSS KALYAN MATKA RESULTS KALYAN MATKA MATKA RESULT KALYAN MATKA TIPS SATTA MATKA MATKA COM MATKA PANA JODI TODAY BATTA SATKA MATKA PATTI JODI NUMBER MATKA RESULTS MATKA CHART MATKA JODI SATTA COM INDIA SATTA MATKA MATKA TIPS MATKA WAPKA ALL MATKA RESULT LIVE ONLINE MATKA RESULT KALYAN MATKA RESULT DPBOSS MATKA 143 MAIN MATKA KALYAN MATKA RESULTS KALYAN CHART KALYAN CHART
During the budget session of 2024-25, the finance minister, Nirmala Sitharaman, introduced the “solar Rooftop scheme,” also known as “PM Surya Ghar Muft Bijli Yojana.” It is a subsidy offered to those who wish to put up solar panels in their homes using domestic power systems. Additionally, adopting photovoltaic technology at home allows you to lower your monthly electricity expenses. Today in this blog we will talk all about what is the PM Surya Ghar Muft Bijli Yojana. How does it work? Who is eligible for this yojana and all the other things related to this scheme?
Prescriptive analytics BA4206 Anna University PPTFreelance
Business analysis - Prescriptive analytics Introduction to Prescriptive analytics
Prescriptive Modeling
Non Linear Optimization
Demonstrating Business Performance Improvement
SATTA MATKA DPBOSS KALYAN MATKA RESULTS KALYAN CHART KALYAN MATKA MATKA RESULT KALYAN MATKA TIPS SATTA MATKA MATKA COM MATKA PANA JODI TODAY BATTA SATKA MATKA PATTI JODI NUMBER MATKA RESULTS MATKA CHART MATKA JODI SATTA COM INDIA SATTA MATKA MATKA TIPS MATKA WAPKA ALL MATKA RESULT LIVE ONLINE MATKA RESULT KALYAN MATKA RESULT DPBOSS MATKA 143 MAIN MATKA KALYAN MATKA RESULTS KALYAN CHART
The Role of White Label Bookkeeping Services in Supporting the Growth and Sca...YourLegal Accounting
Effective financial management is important for expansion and scalability in the ever-changing US business environment. White Label Bookkeeping services is an innovative solution that is becoming more and more popular among businesses. These services provide a special method for managing financial duties effectively, freeing up companies to concentrate on their main operations and growth plans. We’ll look at how White Label Bookkeeping can help US firms expand and develop in this blog.
AI Transformation Playbook: Thinking AI-First for Your BusinessArijit Dutta
I dive into how businesses can stay competitive by integrating AI into their core processes. From identifying the right approach to building collaborative teams and recognizing common pitfalls, this guide has got you covered. AI transformation is a journey, and this playbook is here to help you navigate it successfully.
Satta matka fixx jodi panna all market dpboss matka guessing fixx panna jodi kalyan and all market game liss cover now 420 matka office mumbai maharashtra india fixx jodi panna
Call me 9040963354
WhatsApp 9040963354
High-Quality IPTV Monthly Subscription for $15advik4387
Experience high-quality entertainment with our IPTV monthly subscription for just $15. Access a vast array of live TV channels, movies, and on-demand shows with crystal-clear streaming. Our reliable service ensures smooth, uninterrupted viewing at an unbeatable price. Perfect for those seeking premium content without breaking the bank. Start streaming today!
https://rb.gy/f409dk
❼❷⓿❺❻❷❽❷❼❽ Dpboss Matka Result Satta Matka Guessing Satta Fix jodi Kalyan Final ank Satta Matka Dpbos Final ank Satta Matta Matka 143 Kalyan Matka Guessing Final Matka Final ank Today Matka 420 Satta Batta Satta 143 Kalyan Chart Main Bazar Chart vip Matka Guessing Dpboss 143 Guessing Kalyan night
The Most Inspiring Entrepreneurs to Follow in 2024.pdfthesiliconleaders
In a world where the potential of youth innovation remains vastly untouched, there emerges a guiding light in the form of Norm Goldstein, the Founder and CEO of EduNetwork Partners. His dedication to this cause has earned him recognition as a Congressional Leadership Award recipient.
Ellen Burstyn: From Detroit Dreamer to Hollywood Legend | CIO Women MagazineCIOWomenMagazine
In this article, we will dive into the extraordinary life of Ellen Burstyn, where the curtains rise on a story that's far more attractive than any script.
2. IntroductionIntroduction
Consumer behavior:Consumer behavior:
– Describing consumer preferencesDescribing consumer preferences
– Consumers face budget constraintsConsumers face budget constraints
– Consumers choose to maximize utilityConsumers choose to maximize utility
Production decision of a firm isProduction decision of a firm is
similar to consumer decisionsimilar to consumer decision
– Involves three stepsInvolves three steps
3. Production Decisions of a FirmProduction Decisions of a Firm
1.1. Production TechnologyProduction Technology
Describe howDescribe how inputsinputs can be transformedcan be transformed
intointo outputsoutputs
Inputs: land, labor, capital and rawInputs: land, labor, capital and raw
materialsmaterials
Outputs: cars, desks, books, etc.Outputs: cars, desks, books, etc.
Firms can produce different amounts ofFirms can produce different amounts of
outputs using different combinations ofoutputs using different combinations of
inputsinputs
4. Production Decisions of a FirmProduction Decisions of a Firm
2.2. Cost ConstraintsCost Constraints
Firms must considerFirms must consider pricesprices of labor,of labor,
capital and other inputscapital and other inputs
Firms want to minimize totalFirms want to minimize total
production costs determined by inputproduction costs determined by input
pricesprices
As consumers must consider budgetAs consumers must consider budget
constraints, firms must be concernedconstraints, firms must be concerned
about costs of productionabout costs of production
5. Production Decisions of a FirmProduction Decisions of a Firm
3.3. Input ChoicesInput Choices
– Given input prices and productionGiven input prices and production
technology, the firm must choosetechnology, the firm must choose howhow
much of each inputmuch of each input to use in producingto use in producing
outputoutput
– Given prices of different inputs, theGiven prices of different inputs, the
firm may choose different combinationsfirm may choose different combinations
of inputs to minimize costsof inputs to minimize costs
If labor is cheap, firm may choose toIf labor is cheap, firm may choose to
produce with more labor and less capitalproduce with more labor and less capital
6. Production Decisions of a FirmProduction Decisions of a Firm
Firm is aFirm is a
– cost minimizercost minimizer
– output maximiseroutput maximiser
– profit maximiserprofit maximiser
We can represent the firm’sWe can represent the firm’s
production technology in the form ofproduction technology in the form of
aa productionproduction functionfunction
7. The Technology of ProductionThe Technology of Production
Production Function:Production Function:
– Indicates the highest output (Indicates the highest output (qq) that a) that a
firm can produce for every specifiedfirm can produce for every specified
combination of inputscombination of inputs
– For simplicity, we will consider onlyFor simplicity, we will consider only
labor (L) and capital (K)labor (L) and capital (K)
– Shows what is technically feasible whenShows what is technically feasible when
the firm operates efficientlythe firm operates efficiently
8. The Technology of ProductionThe Technology of Production
The production function for twoThe production function for two
inputs:inputs:
qq = F(K,L)= F(K,L)
– Output (Output (qq) is a function of capital (K)) is a function of capital (K)
and labor (L)and labor (L)
– The production function is true for aThe production function is true for a
given technologygiven technology
If technology improves, more output couldIf technology improves, more output could
be produced for a given level of inputsbe produced for a given level of inputs
9. The Technology of ProductionThe Technology of Production
Short Run versus Long RunShort Run versus Long Run
– It takes time for a firm to adjustIt takes time for a firm to adjust
production from one set of inputs toproduction from one set of inputs to
anotheranother
– Firms must consider not only whatFirms must consider not only what
inputs can be varied but over whatinputs can be varied but over what
period of time that can occurperiod of time that can occur
– We must distinguish between long runWe must distinguish between long run
and short runand short run
10. The Technology of ProductionThe Technology of Production
Short RunShort Run
– Period of time in which quantities of onePeriod of time in which quantities of one
or more production factors cannot beor more production factors cannot be
changedchanged
– These inputs are called fixed inputsThese inputs are called fixed inputs
Long RunLong Run
– Amount of time needed to make allAmount of time needed to make all
production inputs variableproduction inputs variable
11. Production: One Variable InputProduction: One Variable Input
We will begin looking at the short runWe will begin looking at the short run
when only one input can be variedwhen only one input can be varied
We assume capital is fixed and laborWe assume capital is fixed and labor
is variableis variable
– Output can only be increased byOutput can only be increased by
increasing laborincreasing labor
– Must know how output changes as theMust know how output changes as the
amount of labor is changedamount of labor is changed
13. Production: One Variable InputProduction: One Variable Input
Observations:Observations:
1.1. When labor is zero, output is zero asWhen labor is zero, output is zero as
wellwell
2.2. With additional workers, output (With additional workers, output (qq))
increases up to 8 units of laborincreases up to 8 units of labor
3.3. Beyond this point, output declinesBeyond this point, output declines
Increasing labor can make better use ofIncreasing labor can make better use of
existing capital initiallyexisting capital initially
After a point, more labor is not useful andAfter a point, more labor is not useful and
can be counterproductivecan be counterproductive
14. Production: One Variable InputProduction: One Variable Input
Firms make decisions based on theFirms make decisions based on the
benefits and costs of productionbenefits and costs of production
Sometimes useful to look at benefitsSometimes useful to look at benefits
and costs on anand costs on an incremental basisincremental basis
– How much more can be produced whenHow much more can be produced when
at incremental units of an input?at incremental units of an input?
Sometimes useful to makeSometimes useful to make
comparison on ancomparison on an average basisaverage basis
15. Production: One Variable InputProduction: One Variable Input
Average product of Labor - OutputAverage product of Labor - Output
per unit of a particular productper unit of a particular product
Measures the productivity of a firm’sMeasures the productivity of a firm’s
labor in terms of how much, onlabor in terms of how much, on
average, each worker can produceaverage, each worker can produce
L
q
==
InputLabor
Output
APL
16. Production: One Variable InputProduction: One Variable Input
Marginal Product of Labor –Marginal Product of Labor –
additional output produced whenadditional output produced when
labor increases by one unitlabor increases by one unit
Change in output divided by theChange in output divided by the
change in laborchange in labor
L
q
∆
∆
=
∆
∆
=
InputLabor
Output
MPL
18. Production: One Variable InputProduction: One Variable Input
We can graph the information in theWe can graph the information in the
Table to showTable to show
– How output varies with changes in laborHow output varies with changes in labor
Output is maximized at 112 unitsOutput is maximized at 112 units
– Average and Marginal ProductsAverage and Marginal Products
Marginal Product is positive as long as totalMarginal Product is positive as long as total
output is increasingoutput is increasing
Marginal Product crosses Average Product atMarginal Product crosses Average Product at
its maximumits maximum
19. At point D, output is
maximized.
Labor
Output
0 2 3 4 5 6 7 8 9 101
Total Product
60
112
A
B
C
D
Production: One Variable InputProduction: One Variable Input
20. Average Product
Production: One Variable InputProduction: One Variable Input
10
20
Output
per
Worker
30
80 2 3 4 5 6 7 9 101 Labor per Month
E
Marginal Product
•Left of E: MP > AP & AP is increasing
•Right of E: MP < AP & AP is decreasing
•At E: MP = AP & AP is at its maximum
•At 8 units, MP is zero and output is at max
21. Marginal and Average ProductMarginal and Average Product
When marginal product is greater than theWhen marginal product is greater than the
average product, the average product isaverage product, the average product is
increasingincreasing
When marginal product is less than theWhen marginal product is less than the
average product, the average product isaverage product, the average product is
decreasingdecreasing
When marginal product is zero, totalWhen marginal product is zero, total
product (output) is at its maximumproduct (output) is at its maximum
Marginal product crosses average productMarginal product crosses average product
at its maximumat its maximum
22. Production: One Variable InputProduction: One Variable Input
We can see that as we increase laborWe can see that as we increase labor
the additional output producedthe additional output produced
declinesdeclines
Law of Diminishing MarginalLaw of Diminishing Marginal
ReturnsReturns:: As the use of an inputAs the use of an input
increases with other inputs fixed, theincreases with other inputs fixed, the
resulting additions to output willresulting additions to output will
eventually decreaseeventually decrease
23. Law of Diminishing Marginal ReturnsLaw of Diminishing Marginal Returns
When the use of labor input is smallWhen the use of labor input is small
and capital is fixed, output increasesand capital is fixed, output increases
considerably since workers can beginconsiderably since workers can begin
to specialize and MP of laborto specialize and MP of labor
increasesincreases
When the use of labor input is large,When the use of labor input is large,
some workers become less efficientsome workers become less efficient
and MP of labor decreasesand MP of labor decreases
24. Production: Two Variable InputsProduction: Two Variable Inputs
Firm can produce output byFirm can produce output by
combining different amounts of laborcombining different amounts of labor
and capitaland capital
In the long run, capital and labor areIn the long run, capital and labor are
both variableboth variable
We can look at the output we canWe can look at the output we can
achieve with different combinationsachieve with different combinations
of capital and laborof capital and labor
26. Production: Two Variable InputsProduction: Two Variable Inputs
The information can be representedThe information can be represented
graphically usinggraphically using isoquantsisoquants
– Curves showing all possible combinations ofCurves showing all possible combinations of
inputs that yield the same outputinputs that yield the same output
Curve 1 shows all possible combinations ofCurve 1 shows all possible combinations of
labor and capital that will produce 55 unitslabor and capital that will produce 55 units
of outputof output
27. Isoquant MapIsoquant Map
Labor per year1 2 3 4 5
Ex: 55 units of output
can be produced with
3K & 1L (pt. A)
OR
1K & 3L (pt. D)
q1 = 55
q2 = 75
q3 = 90
1
2
3
4
5Capital
per year
D
E
A B C
28. Production: Two Variable InputsProduction: Two Variable Inputs
Diminishing Returns to Labor withDiminishing Returns to Labor with
IsoquantsIsoquants
Holding capital at 3 and increasingHolding capital at 3 and increasing
labor from 0 to 1 to 2 to 3labor from 0 to 1 to 2 to 3
– Output increases at a decreasing rateOutput increases at a decreasing rate
(0, 55, 20, 15) illustrating diminishing(0, 55, 20, 15) illustrating diminishing
marginal returns from labor in the shortmarginal returns from labor in the short
run and long runrun and long run
29. Production: Two Variable InputsProduction: Two Variable Inputs
Substituting Among InputsSubstituting Among Inputs
– Companies must decide whatCompanies must decide what
combination of inputs to use to producecombination of inputs to use to produce
a certain quantity of outputa certain quantity of output
– There is a trade-off between inputs,There is a trade-off between inputs,
allowing them to use more of one inputallowing them to use more of one input
and less of another for the same level ofand less of another for the same level of
outputoutput
30. Production: Two Variable InputsProduction: Two Variable Inputs
Marginal rate of technicalMarginal rate of technical
substitution (MRTS)substitution (MRTS)
- Amount by which the quantity of- Amount by which the quantity of
one input can be reduced whenone input can be reduced when
one extra unit of another input isone extra unit of another input is
used, so that output remainsused, so that output remains
constantconstant
31. Production: Two Variable InputsProduction: Two Variable Inputs
The marginal rate of technicalThe marginal rate of technical
substitution equals:substitution equals:
)( q
L
KMRTS
InputLaborinChange
InputCapitalinChange
MRTS
oflevelfixedafor
∆
∆−=
−=
MRTS = Slope of the Isoquant
32. Marginal Rate ofMarginal Rate of
Technical SubstitutionTechnical Substitution
Labor per month
1
2
3
4
1 2 3 4 5
5Capital
per year
Negative Slope measures MRTS;
MRTS decreases as move down
the isoquant
1
1
1
1
2
1
2/3
1/3
Q1 =55
Q2 =75
Q3 =90
33. Returns to ScaleReturns to Scale
In addition to discussing the tradeoffIn addition to discussing the tradeoff
between inputs to keep productionbetween inputs to keep production
the samethe same
How does a firm decide, in the longHow does a firm decide, in the long
run, the best way to increase output?run, the best way to increase output?
– Can change the scale of production byCan change the scale of production by
increasing all inputs in proportionincreasing all inputs in proportion
– If double inputs, output will most likelyIf double inputs, output will most likely
increase but by how much?increase but by how much?
34. Returns to ScaleReturns to Scale
Rate at which output increases asRate at which output increases as
inputs are increased proportionatelyinputs are increased proportionately
and simultaneouslyand simultaneously
– Increasing returns to scaleIncreasing returns to scale
– Constant returns to scaleConstant returns to scale
– Decreasing returns to scaleDecreasing returns to scale
35. Returns to ScaleReturns to Scale
Increasing returns to scaleIncreasing returns to scale::
output more than doubles when alloutput more than doubles when all
inputs are doubledinputs are doubled
– The isoquants get closer togetherThe isoquants get closer together
36. Increasing Returns to ScaleIncreasing Returns to Scale
10
20
30
The isoquants
move closer
together
Labor (hours)
5 10
Capital
(machine
hours)
2
4
A
37. Returns to ScaleReturns to Scale
Constant returns to scaleConstant returns to scale: output: output
doubles when all inputs are doubleddoubles when all inputs are doubled
– Isoquants are equidistant apartIsoquants are equidistant apart
38. Returns to ScaleReturns to Scale
Constant
Returns:
Isoquants are
equally spaced
2
0
30
Labor (hours)
155 10
A
10
Capital
(machine
hours)
2
4
6
39. Returns to ScaleReturns to Scale
Decreasing returns to scaleDecreasing returns to scale::
output less than doubles when alloutput less than doubles when all
inputs are doubledinputs are doubled
– Isoquants become farther apartIsoquants become farther apart
40. Returns to ScaleReturns to Scale
Labor (hours)
Capital
(machine
hours)
Decreasing Returns:
Isoquants get further
apart10
20
10
4
A
15
5
2
41. RecapRecap
Technology of ProductionTechnology of Production
Production with One Variable InputProduction with One Variable Input
(Labor)(Labor)
Production with Two Variable InputsProduction with Two Variable Inputs
- Isoquants- Isoquants
Returns to ScaleReturns to Scale