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5 - Production PDF
5 - Production PDF
Production
2
Production Functions
q f ( K , L, M )
3
Two-Input Production Function
q f ( K , L)
4
Marginal Product
5
Marginal Product
6
Diminishing Marginal Product
7
FIGURE 5.1: Relationship between Output and
Labor Input Holding Other Inputs Constant
Output Total
per week Output
L* Labor input
8 (b) Marginal product per week
Diminishing Marginal Product
9
Marginal Product Curve
10
Average Product
11
Appraising the Marginal Product
Concept
12
Isoquant Maps
13
Isoquant Map
14
FIGURE 5.2: Isoquant Map
Capital
per week
KA
A
KB
B q = 10
0 LA LB Labor
per week
15
Isoquant Map
16
FIGURE 5.2: Isoquant Map
Capital
per week
KA
A
q = 30
q = 20
KB
B q = 10
0 LA LB Labor
per week
17
Isoquant Map
18
Rate of Technical Substitution
20
Rate of Technical Substitution
21
The RTS and Marginal Products
22
Diminishing RTS
23
Returns to Scale
24
Returns to Scale
26
FIGURE 5.3: Isoquant Maps showing Constant,
Decreasing, and Increasing Returns to Scale
Capital A
per week
4
q = 40
3
q = 30
2
q = 20
1
q = 10
0 1 2 3 4 per Labor
week
(a) Constant Returns to Scale
27
Decreasing Returns to Scale
28
FIGURE 5.3: Isoquant Maps showing Constant,
Decreasing, and Increasing Returns to Scale
Capital A Capital A
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
0 1 2 3 4 per Labor 0 1 2 3 4 Labor
week per week
(a) Constant Returns to Scale (b) Decreasing Returns to Scale
29
Increasing Returns to Scale
30
Capital A Capital A
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
0 1 2 3 4 per Labor 0 1 2 3 4 Labor
week per week
(a) Constant Returns to Scale (b) Decreasing Returns to Scale
Capital A
per week
4
3
q = 40
2 q = 30
q = 20
1
q = 10
0 1 2 3 4 Labor
per week
(c) Increasing Returns to Scale
Input Substitution
32
Fixed-Proportions Production
Function
33
Fixed-Proportions Production
Function
34
FIGURE 5.4: Isoquant Map with Fixed
Proportions
Capital A
per week
K2 q2
K1 q1
K0 q0
0 L0 L1 L2 Labor
per week
35
Fixed-proportions Production
Function
36
The Relevance of Input
Substitutability
37
Changes in Technology
38
Changes in Technology
39
FIGURE 5.5: Technical Change
Capital
per week
K1
K0
q0
q’0
0 L1 L0 Labor
40 per week
Technical Progress versus Input
Substitution
41
Technical Progress versus Input
Substitution
42
A Numerical Example
43
A Numerical Example
44
TABLE 5.1: Hamburger Production Exhibits
Constant Returns to Scale
45
Average and Marginal
Productivities
46
TABLE 5.2: Total Output, Average Productivity,
and Marginal Productivity with Four Grills
Grills (K) Workers (L) Hamburgers per Hour (q) q/L MPL
4 1 20.0 20.0 -
4 2 28.3 14.1 8.3
4 3 34.6 11.5 6.3
4 4 40.0 10.0 5.4
4 5 44.7 8.9 4.7
4 6 49.0 8.2 4.3
4 7 52.9 7.6 3.9
4 8 56.6 7.1 3.7
4 9 60.0 6.7 3.4
4 10 63.2 6.3 3.2
47
Average and Marginal
Productivities
48
The Isoquant Map
50
TABLE 5.3: Construction of the q = 40
Isoquant
Grills
(K)
10
q = 40
4 10 Workers
(L)
52
Technical Progress
54
FIGURE 5.6: Technical Progress in
Hamburger Production
Grills
(K)
10
q = 40
q = 40 after invention
1 4 10 Workers
(L)
55