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Introduction To Inputs And Production Functions

Introduction To Inputs And Production Functions. Inputs/Factors Of Production: Resources such as labor, capital equipment, and raw materials, that are combined to produce finished goods. Output: The amount of a good or service produced by firm. Production function:

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Introduction To Inputs And Production Functions

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  1. Introduction To Inputs And Production Functions

  2. Inputs/Factors Of Production: Resources such as labor, capital equipment, and raw materials, that are combined to produce finished goods. • Output: The amount of a good or service produced by firm.

  3. Production function: A mathematical representation that shows the maximum quantity of output a firm can produce given the quantities of inputs that it might employ. Q = f (L, K) Q = quantity of output L = quantity of labor used K = quantity of capital employed

  4. Production Function With Single Input • Total Production Function Figure 6.2. Page 187

  5. Marginal And Average Product • Average Product Of Labor (APl): APl = (Total Product)/(Quantity Of Labor) = Q/L

  6. Marginal And Average Product (continued)

  7. Figure 6.3. Page 189 Average and marginal Product Function MPl = (change in total product)/(change in quantity of labor) = delta Q / delta L

  8. Figure 6.4. Page 190 Relationship among Total, Average, and Marginal Product Function “Law Of Diminishing Marginal Returns”

  9. Relationship Between Marginal And Average Product • If APl increases in L, then MPl > APl • If APl decreases in L, then MPl < APl • When APl neither increases nor decreases in L, then MPl = APl

  10. Isoquant • Isoquant: a curve that shows all of the combination of labor and capital that can produce a given level of output. Figure 6.8. Page 196 Isoquant

  11. Problem: Production function Q = (KL)1/2 What the isoquant when Q=20? Answer: Q = (KL)1/2 20 = (KL)1/2 (20)2 = (KL)1/2 .2 400 = KL K = 400/L………..The Isoquant

  12. Return To Scale • Return To Scale: the concept that tell us the percentage by which output will increase when all inputs are increased by a given percentage.

  13. Increasing Return To Scale A proportionate increase in all input quantities resulting in a greater than proportionate increase in output.

  14. Constant Return To Scale A proportionate increase in all input quantities resulting the same proportionate increase in output.

  15. Decreasing Return To Scale A proportionate increase in all input quantities resulting in a less than proportionate increase in output.

  16. Problem: Q = 2L0.5K0.7 Exhibit increasing return to scale?

  17. Problem: Q = 6L2 – L3 How much the firm should produce so that: a. Average product is maximized b. Marginal Product is maximized c. Total Product is maximized

  18. Problem: What can you say about the returns to scale of the linear production: Q = aK + bL where a and b are positive constant.

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