MINGGU 5

POKOK BAHASAN: FUNGSI PRODUKSI

MATA KULIAH EKONOMI MIKRO

PROGRAM STUDI EKONOMI PERTANIAN DAN AGRIBISNIS
2021
SUB POKOK BAHASAN:
5.1 Production Function and Cobb-Douglass
Production Function
5.2 Input-output Relationship
5.3 Input-input Relationship
5.4 Output-output Relationship
5.1 Production Function and Cobb-Douglass
Production Function
Production Descisions of a Firm
1. Production Technology
Describing how inputs (i.e., labor, capital, raw materials) can be transformed into output

INPUT (Xi) Transformation OUTPUT (q)

labor PADI
Capital
raw materials q= f(xi)

2. Cost Constraint
Prices of inputs with limited firm budget for production

3. Input Choices
How much inputs to use to produce output
Firms and Their Production Decisions:
Why do firms exist?
Modern corporation emerged only in the latter of 19th century =>
Beforehand, production was done by farmer, craftsmen, etc.

In principle, cars could indeed be produced by a large number of

independent workers, and an education could be produced by a number of
independent teachers.

These independent workers would offer their services for negotiated fees,
and those fees would be determined by market supply and demand.

So why do firms exist?

Firms and Their Production Decisions:
Why do firms exist?
Firms offer a means of coordination and organization of activities of large
numbers of workers
=> Firms eliminate the need for every worker to negotiate every task that he
or she will perform, and bargain over the fees that will be paid for those
tasks
=> Independent output production is extremely inefficient
• Difficult for independent workers to decide who will do what to
produce cars
• Difficult to negotiate the fees that each worker will charge for each task
• The product quality would likely be abysmal, and the cost astronomical
Firms and Their Production Decisions:
Productions Function
Production function
Relationship between the inputs (q) that are used in the production processes

q = f (K, L)

Where:
q = output
K = capital
L = labor

Inputs can be combined in various proportions

Firms and Their Production Decisions:
Short-run vs. Long-run
It takes time for a firm to adjust its inputs to produce its product with differing
amounts of labor and capital
• A new factory must be planned and built
• Machinery and other capital equipment must be ordered and delivered

Important to distinguish between short and long run

Firms and Their Production Decisions:
Short-run vs. Long-run
Short-run
A period of time in which the
quantities of one or more
factors of production cannot be
Changed
=> Fixed input
Long-run
• The amount of time needed to make
all inputs variable
• Long run can be as brief as a day or
two for a child’s lemonade stand or
as long as five or ten years for a
petrochemical producer or an
automobile manufacturer
Cobb-Douglas Production Function
• The most famous agricultural production function.
• It was first published in 1928

Form: q = AKαL1-α
Where:
q : output
K : capital
L : labor
5.3 Input-output Relationship
Production with One Variable Input (Labor)

Assuming short run:

capital (i.e., cash, equipment) is fixed;
labor is variable
 This means that firm needs to use
more labor to produce more
output

 q= produksi=total
produksi= TP (total
product) q= f (L,K)
AP- Average product=q/L=
produktivitas
MP= marginal product =δq/δL
Q=f (L)  dq/dL
 Production with One Variable Input (Labor)

• Average product of labor

= output / labor
=q/L

• Marginal product of labor =

change in output / change
in labor = ∆q / ∆L

 Change in output as a result

of 1-unit change in labor
Production with One Variable Input (Labor)
Production with One Variable Input (Labor)
The graph shows:

a. As labor is increased, output increases

until it reaches the maximum output (of
112), then falls

b. Marginal product (MP) is positive as long

as output (total product/TP) is
increasing, but becomes negative when
TP is decreasing

c. MP curve crosses the horizontal axis at

the point of maximum TP, since adding a
worker decreases TP and implies
negative MP for the worker
Production with One Variable Input (Labor)

Relationship between MP and

average
product (AP):

When MP > AP, AP is increasing

If the output of an additional
worker is greater than the
average output of each existing
worker (i.e., MP > AP), then
adding the worker causes average
output to rise
Production with One Variable Input (Labor)
Relationship between MP and average product
(AP):

When MP > AP, AP is increasing

 If the output of an additional worker is
greater than the average output of each
existing worker (i.e., MP > AP), then adding
the worker causes average output to rise
 Two workers produce 30 units of output, for
an average product of 15 units per worker
 Adding a third worker increases output by 30
units (to 60), which raises the average
product from 15 to 20

Vice versa, when MP < AP, AP is decreasing

Production with One Variable Input (Labor)
Relationship between MP and average product
(AP):

• When MP > AP, AP is increasing

• Vice versa, when MP < AP, AP is decreasing

• When MP = AP, AP is maximum

Production with One Variable Input (Labor)

The law of diminishing marginal return:

“As the use of an input increases in

equal increments (with other inputs
fixed), a point will eventually be reached
where it causes output to decrease”

When there are too many workers,

some workers become ineffective and
the MP of labor falls
Input –output relationship Equilibrium
Π = TVP-TC  Π = f(X) TP.Pq=TVP Nilai produksi
=Pq q –(Px. X +FC)  q =f (x)
Turunan 1=0
d Π = Pq . f’ (X) – Px
dX
0 = MVP - Px  Equilibrium: MVP= Px X=??
Production with One Variable Input (Labor)

The effect of technological improvement:

For example, technological improvements in

agriculture (e.g., genetically engineered pest-
resistant seeds, more powerful and effective
fertilizers, and better farm equipment)

As a result, output changes from A (with an

input of 6 on curve O1) to B (with an input
of 7 on curve O2) to C (with an input of 8 on
curve O3)
5.4 Input-input Relationship
Production with Two Variable Inputs
Assuming long run: both capital and labor are variable
Firm uses both inputs and can vary them

Isoquants:
a curve that shows all
the possible
combination of inputs
that yield the same
output
Production with Two Variable Inputs

Isoquant: curve that shows all the possible

combination of inputs that yield the same output

Isoquant map: graph combining a

number of isoquants
Production with Two Variable Inputs
Production with Two Variable Inputs
Substitution among inputs
Marginal rate of technical
substitution (MRTS)

MRTS of labor for capital:

The amount of capital to reduce
when one extra unit of labor is
used, so that output is constant

MRTS = − ∆K/∆L
Production with Two Variable Inputs
MRTS = − ∆K/∆L

Diminishing MRTS:
• As more and more labor is added
to the production process in place
of capital, the productivity of labor
falls
• When more capital is added in
place of labor, the productivity of
capital falls
Production with Two Variable Inputs
Relationship between MRTS and MP:
• Additional output from increased use of labor = (MPL)(∆L)
• Reduction in output from decreased use of capital = (MPK)(∆K)
• The total change: q= f (L,K)
dq = δq/δL . dL + δq/δK . dK
dq0 = δq/δL . dL + δq/δK . dK ISOQUANT
0 = MPL dL + MPK. dK
- dK = MPL MRTS
dL MPK
Production with Two Variable Inputs:
Two special Cases
Returns to Scale
 Rate at which output increases as (all) inputs are increased
proportionately
For example:
• It usually takes one farmer working with one harvesting machine on
one acre of land to produce 100 bushels of wheat
• What will happen to output if we put two farmers to work with two
machines on two acres of land?
• Output will almost certainly increase, but will it double, more than
double, or less than double?
Returns to Scale
• Production function: q = f (K, L)
• All inputs are multiplied by the same positive constant t (t > 0)

a. Increasing: all inputs are doubled => output adds more than double
f (tK, tL) < tq
b. Constant: all inputs are doubled => output doubles
f (tK, tL) = tq
c. Decreasing: all inputs are doubled => output less than doubles
f (tK, tL) > tq
2. Cost constraint

K
C = PL. L + PK . K  LR (long run)

Isocost function:

K = C/Pk - PL/PK . L
Slope Isocost : - PL/PK

0 L
3. Produsen Equilibrium

K
Equilibrium:
E MRTS = - PL/PK

q0 MPL = Pl  L dan K (?)

MPk Pk
0 L
5.5 Output-output Relationship
 HUBUNGAN OUTUT-OUTPUT
Variasi/alternatif output yang dapat
diperoleh dengan menggunakan sejumlah
input tertentu yang dimiliki

Misal : produsen ingin memproduksi susu

segar dan keju dengan input 5 sapi
dengan 2 orang TK
 KURVA KEMUNGKINAN PRODUKSI
(POSSIBILITY PRODUCTION CURVE)
(q2)

berbagai
KKP
kemungkinan
output yang
dihasilkan
dengan input
yang dimiliki

(q1)
R = f (q1, q2)

dR = δR/ δq1 dq1 + δR/ δq2 dq2

0 = δR/ δq1 dq1 + δR/ δq2 dq2

- dq2 = δR/ δq1  MRPS  Slope KKP

dq1 δR/ δq2
 PERBEDAAN KKP DENGAN
ISOQUANT
X2 Q2
KKP
isoquant

X1
Q1
1.Jenis kombinasi yang diukur
2.Kurva Isoquant cembung, KKP cekung
Bentuk lain hubungan 2 Output

Competitive Complementary

Supplementary

Joint
 Competitive
Susu segar
B
20
Apabila output suatu
A produk meningkat maka
15 akan menurunkan
C output produk lainnya
10

Keju
5 10 15
 Complementary
Tahu
B
20 Apabila output suatu
produk meningkat maka
15 A akan meningkatkan
output produk lainnya

Ampas tahu
4 6
 Supplementary
padi

A B Apabila output suatu produk

15 meningkat/menurun maka
output produk lainnya akan
tetap/konstan

ikan
4 6
 Joint
Q2
Misal :
Q1 : Q2 = 1 : 2 C
16
12 B dua macam produk atau
lebih dihasilkan secara
8 A simultan pada perbandingan
tertentu

Q1
4 6 8
 Marginal Rate of Product
Substitution (MRPS)

jumlah output Q2 yang

dapat digantikan oleh
setiap unit output Q1
apabila sumberdaya
yang digunakan tetap
Isorevenue
kurva yang menggambarkan kombinasi output
yang menghasilkan total penerimaan (TR) yang
sama
Q2
PQ1  2; PQ2  1; TR  80
80 TR

Q1 Q2 TR
0 80 80
10 60 80
Q1 20 40 80
30 20 80
40 40 0 80
REVENUE= TOTAL REVENUE

TR = Pq1 . q1 + Pq2 . q2
TR0= Pq1 . q1 + Pq2 . q2
Pq2 . q2 = TR- Pq1 .

q2 = TR/Pq2 – Pq1/Pq2 . Q1 ---Isorevenue function

Slope Isorevenue = – Pq1/Pq2
Equilibrium produsen output-output

-dq2 = – Pq1/Pq2
- dq1

R/ δq1 = – Pq1/Pq2
δR/ δq2