Chapter 6 Production
Chapter 6 Production
Topics to be Discussed a The Technology of Production ■| soquants a Production with One Variable Input Labor a Production with Two Variable Inputs ■ Returns to scale Chapter 6 Slide 2
Chapter 6 Slide 2 Topics to be Discussed ◼ The Technology of Production ◼ Isoquants ◼ Production with One Variable Input (Labor) ◼ Production with Two Variable Inputs ◼ Returns to Scale
Introduction a Our focus is the supply side a The theory of the firm will address o How a firm makes cost-minimizing production decisions o How cost varies with output o Characteristics of market supply o Issues of business requlation Chapter 6 Slide 3
Chapter 6 Slide 3 Introduction ◼ Our focus is the supply side. ◼ The theory of the firm will address: ⚫ How a firm makes cost-minimizing production decisions ⚫ How cost varies with output ⚫ Characteristics of market supply ⚫ Issues of business regulation
The Technology of Production a The Production process Combining inputs or factors of production to achieve an output a Categories of Inputs(factors of production) Labor Materials ● Capital Chapter 6 Slide 4
Chapter 6 Slide 4 The Technology of Production ◼ The Production Process ⚫ Combining inputs or factors of production to achieve an output ◼ Categories of Inputs (factors of production) ⚫ Labor ⚫ Materials ⚫ Capital
The Technology of Production ■ Production Function o Indicates the highest output that a firm can produce for every specified combination of inputs given the state of technology. o Shows what is technically feasible when the firm operates efficiently Chapter 6 Slide 5
Chapter 6 Slide 5 The Technology of Production ◼ Production Function: ⚫ Indicates the highest output that a firm can produce for every specified combination of inputs given the state of technology. ⚫ Shows what is technically feasible when the firm operates efficiently
The Technology of Production a The production function for two inputs Q=F(K, L Q=Output, K=Capital, L= Labor a For a given technology Chapter 6 Slide 6
Chapter 6 Slide 6 The Technology of Production ◼ The production function for two inputs: Q = F(K,L) Q = Output, K = Capital, L = Labor ◼ For a given technology
Isoquants ■ Assumptions o Food producer has two inputs ◆ Labor(L)& Capital(K Chapter 6 Slide 7
Chapter 6 Slide 7 Isoquants ◼ Assumptions ⚫ Food producer has two inputs ◆Labor (L) & Capital (K)
Isoquants ■○ bservations 1) For any level of K, output increases with more l 2) For any level of L, output increases with more K 3)Various combinations of inputs produce the same output Chapter 6 Slide 8
Chapter 6 Slide 8 Isoquants ◼ Observations: 1) For any level of K, output increases with more L. 2) For any level of L, output increases with more K. 3) Various combinations of inputs produce the same output
Isoquants ■| soquants o Curves showing all possible combinations of inputs that yield the same output Chapter 6 Slide 9
Chapter 6 Slide 9 Isoquants ◼ Isoquants ⚫ Curves showing all possible combinations of inputs that yield the same output
Production Function for food Labor Input Capital Input 1 3 20 40 55 65 55 12345 40 60 75 85 90 55 75 90 100 105 65 85 100 110115 75 90 105 115120 Chapter 6 Slide 10
Chapter 6 Slide 10 Production Function for Food 1 20 40 55 65 75 2 40 60 75 85 90 3 55 75 90 100 105 4 65 85 100 110 115 5 75 90 105 115 120 Capital Input 1 2 3 4 5 Labor Input