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What To Produce How To Produce Efficient: Marginal
What To Produce How To Produce Efficient: Marginal
What To Produce How To Produce Efficient: Marginal
Managers must decide not only what to produce for the market, but also how to produce it in the most efficient or least cost manner. Economics offers widely accepted tools for judging whether the production choices are least cost. A production function relates the most that can be produced from a given set of inputs.
Production functions allow measures of the marginal product of each input.
Slide 1
Lets begin by analyzing a production function with only one variable input, labor, L.
Slide 3
Average Product of labor = Q / L output per labor Marginal Product of labor =x Q / x L output attributable to last unit of labor applied When MP = AP, were at the peak of the AP curve
Slide 4
Numerical Example
L
0 1 2 3 4 5
Q
0 20 46 70 92 110
MP
--20 26 24 22 18
AP --20 23 23.33 23 22
Marginal Product
Average Product
Labor Elasticity is greater then one, for labor use up through L = 3 units
5
Slide 5
When MP > AP, then AP is RISING If your marginal grade is higher in the class than your average GPA, then your GPA will improve (rise) When MP < AP, then AP is FALLING If your marginal grade is lower in the class than your average GPA, then your GPA will fall Therefore MP will cut the AP at its maximum point
Slide 6
Stage 3
L
Slide 8
ISOQUANT MAP
B A
Q3 Q2 Q1
Slide 11
MPL/CL = MPK/CK
where marginal products per dollar are equal at D, slope of isocost = slope of isoquant C(1) Q(1)
L
Slide 12
people
Slide 13
Returns to Scale
If multiplying all inputs by P (lambda) increases the dependent variable by P, the firm has constant returns to scale (CRS).
E + F !
Slide 14