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Production Theory and Estimation the Firm and its Technology, Ch 6

Production Theory and Estimation the Firm and its Technology, Ch 6 Plus ideas we need from Ch 7, Optimal Input Combinations and Cost Functions. Mansfield and Yohe. The long run and returns to scale: 1. increasing returns 2. constant returns 3. decreasing returns.

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Production Theory and Estimation the Firm and its Technology, Ch 6

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  1. Production Theory and Estimation the Firm and its Technology, Ch 6 Plus ideas we need from Ch 7, Optimal Input Combinations and Cost Functions. Mansfield and Yohe

  2. The long run and returns to scale: 1. increasing returns 2. constant returns 3. decreasing returns

  3. This slope is called the "Marginal Rate of Technical Substitution"

  4. Optimal utilization of an input: MRPY = MEY

  5. The Optimal Combination of Inputs MPa/(Pa) = MPb/(Pb) = … = MPn/(Pn) This is demonstrated by LaGrangean method.

  6. Issues regarding the estimation of production functions and the practical applications of the estimates--these follow.

  7. Apple production process data set. Also let input prices be: 250, 133, 450, 200, and 100. Means at bottom.

  8. Summary log regression output for Apple firm data.

  9. What do people do with such results? It is a warning bell: If marginal products per dollar aren't approximately equal across inputs, then you have a big problem.

  10. "Quick way" refers to the fact that you don't need to recalculate the entire expression each time. Find Q evaluated at mean input levels. Then, MP1 = 1 Q/K1.

  11. Here Labor and Equipment give the best performance on the margin, while Other Resources and Land are relatively useless in this project on the margin.

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