单击此处编辑母版标题样式,单击此处编辑母版文本样式,第二级,第三级,第四级,第五级,,,*,单击此处编辑母版标题样式,单击此处编辑母版文本样式,第二级,第三级,第四级,第五级,Chapter 6,Slide,*,单击此处编辑母版标题样式,单击此处编辑母版文本样式,第二级,第三级,第四级,第五级,Chapter 6,Slide,*,单击此处编辑母版标题样式,单击此处编辑母版文本样式,第二级,第三级,第四级,第五级,Chapter 6,Slide,*,,,Topics to be Discussed,The Technology of Production,Isoquants,Production with One Variable Input (Labor),Production with Two Variable Inputs,Returns to Scale,1,Chapter 6,Topics to be DiscussedThe Tech,,,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,2,Chapter 6,IntroductionOur focus is the s,,,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,3,Chapter 6,The Technology of ProductionTh,,,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,.,4,Chapter 6,The Technology of ProductionPr,,,The Technology of Production,The production function for two inputs:,,Q = F(K,L),Q =,Output,, K =,Capital,,L,= Labor,For a given technology,5,Chapter 6,The Technology of ProductionTh,,,Isoquants,Assumptions,Food producer has two inputs,Labor (,L,) & Capital (,K,),6,Chapter 6,IsoquantsAssumptions6Chapter 6,,,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.,7,Chapter 6,IsoquantsObservations:7Chapter,,,Isoquants,Isoquants,Curves showing all possible combinations of inputs that yield the same output,8,Chapter 6,IsoquantsIsoquants8Chapter 6,,,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,,,,,,,,,,9,Chapter 6,Production Function for Food1,,,,,Production with Two Variable Inputs (,L,K,),,Labor per year,1,2,3,4,1,2,3,4,5,5,,,Q,1,=,55,The,isoquants are derived,from the production,function for output of,of 55, 75, and 90.,A,D,,B,,,Q,2,=,75,Q,3,=,90,,C,E,Capital,per year,The Isoquant Map,10,Chapter 6,Production with Two Variable I,,,Isoquants,The isoquants emphasize how different input combinations can be used to produce the same output.,This information allows the producer to respond efficiently to changes in the markets for inputs.,Input Flexibility,11,Chapter 6,IsoquantsThe isoquants emphasi,,,Isoquants,Short-run:,Period of time in which quantities of one or more production factors cannot be changed.,These inputs are called,fixed inputs.,The Short Run versus the Long Run,12,Chapter 6,IsoquantsShort-run:The Short R,,,Isoquants,Long-run,Amount of time needed to make all production inputs variable.,The Short Run versus the Long Run,13,Chapter 6,IsoquantsLong-runThe Short Run,Amount Amount Total Average Marginal,of Labor (,L,) of Capital (,K,) Output (,Q,) Product Product,,,Production with One Variable Input (Labor),,0 10 0 --- ---,1 10 10 10 10,2 10 30 15 20,3 10 60 20 30,4 10 80 20 20,5 10 95 19 15,6 10 108 18 13,7 10 112 16 4,8 10 112 14 0,9 10 108 12 -4,10 10 100 10 -8,14,Chapter 6,Amount Amount Total Average,,,Observations:,1) With additional workers, output (,Q,) increases, reaches a maximum, and then decreases.,Production with One Variable Input (Labor),15,Chapter 6,Observations:Production with O,,,Observations:,2) The average product of labor (,AP,), or output per worker, increases and then decreases.,,Production with One Variable Input (Labor),16,Chapter 6,Observations:Production with O,,,Observations:,3) The marginal product of labor (M,P,), or output of the additional worker, increases rapidly initially and then decreases and becomes negative..,,Production with One Variable Input (Labor),17,Chapter 6,Observations:Production with O,,Total Product,,A: slope of tangent = MP (20),B: slope of OB = AP (20),C: slope of OC= MP & AP,,,,Labor per Month,Output,per,Month,60,112,0,2,3,4,5,6,7,8,9,10,1,A,,,,B,C,D,,Production with One Variable Input (Labor),18,Chapter 6,Total ProductA: slope of tange,,Average Product,,,,Production with One Variable Input (Labor),8,10,20,,Output,per,Month,0,2,3,4,5,6,7,9,10,1,Labor per Month,30,E,,,Marginal Product,Observations:,Left of E: MP > AP & AP is increasing,Right of E: MP < AP & AP is decreasing,E: MP = AP & AP is at its maximum,19,Chapter 6,Average ProductProduction with,,,Observations:,When,MP =,0,,TP,is at its maximum,When,MP > AP, AP,is increasing,When,MP < AP, AP,is decreasing,When,MP = AP, AP,is at its maximum,Production with One Variable Input (Labor),20,Chapter 6,Observations:Production with O,Production with One Variable Input (Labor),,,,,,Labor,per Month,Output,per,Month,60,112,0,2,3,4,5,6,7,8,9,10,1,A,,,,,B,C,D,,,8,10,20,E,,,0,2,3,4,5,6,7,9,10,1,30,Output,per,Month,Labor,per Month,,AP =,slope of line from origin to a point on,TP,, lines,b, & c.,MP =,slope of a tangent to any point on the,TP,line, lines a & c.,,Production with One Variable I,21,,,As the use of an input increases in equal increments, a point will be reached at which the resulting additions to output decreases (i.e.,MP,declines).,Production with One Variable Input (Labor),The Law of Diminishing Marginal Returns,22,Chapter 6,As the use of an input increas,,,When the labor input is small,,MP,increases due to specialization.,When the labor input is large,,MP,decreases due to inefficiencies.,The Law of Diminishing Marginal Returns,Production with One Variable Input (Labor),23,Chapter 6,When the labor input is small,,,,Can be used for long-run decisions to evaluate the trade-offs of different plant configurations,Assumes the quality of the variable input is constant,The Law of Diminishing Marginal Returns,Production with One Variable Input (Labor),24,Chapter 6,Can be used for long-run decis,,,Explains a declining,MP,, not necessarily a negative one,Assumes a constant technology,,The Law of Diminishing Marginal Returns,Production with One Variable Input (Labor),25,Chapter 6,Explains a declining MP, not n,,,The Effect of Technological Improvement,,Labor per,time period,Output,per,time,period,50,100,0,2,3,4,5,6,7,8,9,10,1,,,A,O,1,,,C,O,3,,O,2,,B,Labor productivity,can increase if there,are improvements in,technology, even though,any given production,process exhibits,diminishing returns to,labor.,26,Chapter 6,The Effect of Technological Im,,,Malthus predicted mass hunger and starvation as diminishing returns limited agricultural output and the population continued to grow.,Why did Malthus’ prediction fail?,Malthus and the Food Crisis,27,Chapter 6,Malthus predicted mass hunger,,,Index of World Food Consumption Per Capita,1948-1952 100,1960 115,1970 123,1980 128,1990 137,1995 135,1998 140,Year Index,28,Chapter 6,Index of World Food Consumptio,,,Malthus and the Food Crisis,The data show that production increases have exceeded population growth.,Malthus did not take into consideration the potential impact of technology which has allowed the supply of food to grow faster than demand.,29,Chapter 6,Malthus and the Food CrisisThe,,,Malthus and the Food Crisis,Technology has created surpluses and driven the price down.,Question,If food surpluses exist, why is there hunger?,,30,Chapter 6,Malthus and the Food CrisisTec,,,Malthus and the Food Crisis,Answer,The cost of distributing food from productive regions to unproductive regions and the low income levels of the non-productive regions.,31,Chapter 6,Malthus and the Food CrisisAns,,,Labor Productivity,,Production with One Variable Input (Labor),32,Chapter 6,Labor Productivity Production,,,Labor Productivity and the Standard of Living,Consumption can increase only if productivity increases.,Determinants of Productivity,Stock of capital,Technological change,Production with One Variable Input (Labor),33,Chapter 6,Labor Productivity and the Sta,Labor Productivity in Developed Countries,1960-1973 4.75 4.04 8.30 2.89 2.36,1974-1986 2.10 1.85 2.50 1.69 0.71,1987-1997 1.48 2.00 1.94 1.02 1.09,,United United,France Germany Japan Kingdom States,Annual Rate of Growth of Labor Productivity (%),$54,507 $55,644 $46,048 $42,630 $60,915,Output per Employed Person (1997),34,Chapter 6,Labor Productivity in Develope,,,Trends in Productivity,1) U.S. productivity is growing at a slower rate than other countries.,2) Productivity growth in developed countries has been decreasing.,Production with One Variable Input (Labor),35,Chapter 6,Trends in ProductivityProducti,,,Explanations for Productivity Growth Slowdown,1) Growth in the stock of capital is the primary determinant of the growth in productivity.,Production with One Variable Input (Labor),36,Chapter 6,Explanations for Productivity,,,Explanations for Productivity Growth Slowdown,2) Rate of capital accumulation in the U.S. was slower than other developed countries because the others were rebuilding after WWII.,Production with One Variable Input (Labor),37,Chapter 6,Explanations for Productivity,,,Explanations for Productivity Growth Slowdown,3) Depletion of natural resources,4) Environment regulations,Production with One Variable Input (Labor),38,Chapter 6,Explanations for Productivity,,,Observation,U.S. productivity has increased in recent years,What Do You Think?,Is it a short-term aberration or a new long-run trend?,Production with One Variable Input (Labor),39,Chapter 6,ObservationProduction with One,,,Production with Two Variable Inputs,There is a relationship between production and productivity.,Long-run production,K& L,are variable.,Isoquants analyze and compare the different combinations of,K & L,and output,40,Chapter 6,Production with Two Variable I,,,The Shape of Isoquants,,Labor per year,1,2,3,4,1,2,3,4,5,5,In the long run both,labor and capital are,variable and both,experience diminishing,returns.,,,Q,1,=,55,,Q,2,=,75,Q,3,=,90,Capital,per year,,,A,D,,B,,C,E,,41,Chapter 6,The Shape of IsoquantsLabor pe,,,Reading the Isoquant Model,1) Assume capital is 3 and labor increases from 0 to 1 to 2 to 3.,Notice output increases at a decreasing rate (55, 20, 15) illustrating diminishing returns from labor in the short-run and long-run.,Production with Two Variable Inputs,Diminishing Marginal Rate of Substitution,42,Chapter 6,Reading the Isoquant ModelProd,,,Reading the Isoquant Model,2) Assume labor is 3 and capital increases from 0 to 1 to 2 to 3.,Output also increases at a decreasing rate (55, 20, 15) due to diminishing returns from capital.,Diminishing Marginal Rate of Substitution,Production with Two Variable Inputs,43,Chapter 6,Reading the Isoquant ModelDimi,,,Substituting Among Inputs,Managers want to determine what combination if inputs to use.,They must deal with the trade-off between inputs.,Production with Two Variable Inputs,44,Chapter 6,Substituting Among InputsProdu,,,Substituting Among Inputs,The slope of each isoquant gives the trade-off between two inputs while keeping output constant.,Production with Two Variable Inputs,45,Chapter 6,Substituting Among InputsProdu,,,Substituting Among Inputs,The marginal rate of technical substitution equals:,,Production with Two Variable Inputs,46,Chapter 6,Substituting Among InputsProdu,,,Marginal Rate of Technical Substitution,,Labor per month,1,2,3,4,1,2,3,4,5,5,Capital,per year,Isoquants are downward,sloping and convex,like indifference,curves.,1,1,1,1,2,1,2/3,1/3,,Q,1,=,55,,Q,2,=,75,Q,3,=,90,,47,Chapter 6,Marginal Rate of Technical Sub,,,Observations:,1) Increasing labor in one unit increments from 1 to 5 results in a decreasing,MRTS,from 1 to 1/2.,2) Diminishing,MRTS,occurs because of diminishing returns and implies isoquants are convex.,Production with Two Variable Inputs,48,Chapter 6,Observations:Production with T,,,Observations:,3),MRTS,and Marginal Productivity,The change in output from a change in labor equals:,,Production with Two Variable Inputs,49,Chapter 6,Observations:Production with T,,,Observations:,3),MRTS,and Marginal Productivity,The change in output from a change in capital equals:,Production with Two Variable Inputs,,50,Chapter 6,Observations:Production with T,,,Observations:,3),MRTS,and Marginal Productivity,If output is constant and labor is increased, then:,,Production with Two Variable Inputs,51,Chapter 6,Observations:Production with T,,,Isoquants When Inputs are Perfectly Substitutable,,Labor,per month,Capital,per,month,Q,1,Q,2,Q,3,,A,,B,,C,52,Chapter 6,Isoquants When Inputs are Perf,,,Observations when inputs are perfectly substitutable:,1) The MRTS is constant at all points on the isoquant.,Production with Two Variable Inputs,Perfect Substitutes,53,Chapter 6,Observations when inputs are p,,,Observations when inputs are perfectly substitutable:,2) For a given output, any combination of inputs can be chosen (,A, B, or C),to generate the same level of output (e.g. toll booths & musical instruments),Production with Two Variable Inputs,Perfect Substitutes,54,Chapter 6,Observations when inputs are p,,,Fixed-Proportions Production Function,,Labor,per month,Capital,per,month,L,1,,K,1,,,Q,1,Q,2,Q,3,A,B,C,55,Chapter 6,Fixed-Proportions Production F,,,Observations when inputs must be in a fixed-proportion:,1) No substitution is possible.Each output requires a specific amount of each input (e.g. labor and jackhammers).,Fixed-Proportions Production Function,Production with Two Variable Inputs,56,Chapter 6,Observations when inputs must,,,Observations when inputs must be in a fixed-proportion:,2) To increase output requires more labor and capital (i.e. moving from,A,to,B,to,C,which is technically efficient).,Fixed-Proportions Production Function,Production with Two Variable Inputs,57,Chapter 6,Observations when inputs must,,,A Production Function for Wheat,Farmers must choose between a capital intensive or labor intensive technique of production.,58,Chapter 6,A Production Function for Whea,,,Isoquant Describing the Production of Wheat,Labor,(hours per year),Capital,(machine,hour per,year),250,500,760,1000,40,80,120,100,,,,90,,,Output = 13,800 bushels,per year,A,B,Point,A,is more,capital-intensive, and,B,is more labor-intensive.,59,Chapter 6,Isoquant Describing the Produc,,,Observations:,1) Operating at,A:,L =,500 hours and,K =,100 machine hours.,Isoquant Describing the Production of Wheat,60,Chapter 6,Observations:Isoquant Describi,,,Observations:,2) Operating at B,Increase L to 760 and decrease K to 90 the MRTS < 1:,,Isoquant Describing the Production of Wheat,61,Chapter 6,Observations:Isoquant Describi,,,Observations:,3),MRTS,< 1, therefore the cost of labor must be less than capital in order for the farmer substitute labor for capital.,4) If labor is expensive, the farmer would use more capital (e.g. U.S.).,Isoquant Describing the Production of Wheat,62,Chapter 6,Observations:Isoquant Describi,,,Observations:,5) If labor is inexpensive, the farmer would use more labor (e.g. India).,Isoquant Describing the Production of Wheat,63,Chapter 6,Observations:Isoquant Describi,,,Returns to Scale,Measuring the relationship between the scale (size) of a firm and output,1),Increasing returns to scale,: output more than doubles when all inputs are doubled,Larger output associated with lower cost (autos),One firm is more efficient than many (utilities),The isoquants get closer together,64,Chapter 6,Returns to ScaleMeasuring the,,,Returns to Scale,Labor (hours),Capital,(machine,hours),,10,20,30,,,Increasing Returns:,The isoquants move closer together,5,10,2,4,0,A,,,65,Chapter 6,Returns to ScaleLabor (hours)C,,,Returns to Scale,Measuring the relationship between the scale (size) of a firm and output,2),Constant returns to scale,: output doubles when all inputs are doubled,Size does not affect productivity,May have a large number of producers,Isoquants are equidistant apart,66,Chapter 6,Returns to ScaleMeasuring the,,,Returns to Scale,Labor (hours),Capital,(machine,hours),Constant Returns:,Isoquants are equally spaced,,10,20,30,,,15,5,10,2,4,0,A,,,6,,67,Chapter 6,Returns to ScaleLabor (hours)C,,,Returns to Scale,Measuring the relationship between the scale (size) of a firm and output,3),Decreasing returns to scale,: output less than doubles when all inputs are doubled,Decreasing efficiency with large size,Reduction of entrepreneurial abilities,Isoquants become farther apart,68,Chapter 6,Returns to ScaleMeasuring the,,,Returns to Scale,Labor (hours),Capital,(machine,hours),Decreasing Returns:,Isoquants get further,apart,,10,20,30,,,5,10,2,4,0,A,,,69,Chapter 6,Returns to ScaleLabor (hours)C,,,Returns to Scale in the Carpet Industry,The carpet industry has grown from a small industry to a large industry with some very large firms.,70,Chapter 6,Returns to Scale in the Carpet,,,Returns to Scale in the Carpet Industry,Question,Can the growth be explained by the presence of economies to scale?,71,Chapter 6,Returns to Scale in the Carpet,Carpet Shipments, 1996,(Millions of Dollars per Year),The U.S. Carpet Industry,1. Shaw Industries $3,202 6. World Carpets $475,2. Mohawk Industries 1,795 7. Burlington Industries 450,3. Beaulieu of America 1,006 8. Collins & Aikman 418,4. Interface Flooring 820 9. Masland Industries 380,5. Queen Carpet 775 10. Dixied Yarns 280,Carpet Shipments, 1996The U.S.,72,,,Returns to Scale in the Carpet Industry,Are there economies of scale?,Costs (percent of cost),Capital -- 77%,Labor -- 23%,73,Chapter 6,Returns to Scale in the Carpet,,,Returns to Scale in the Carpet Industry,Large Manufacturers,Increased in machinery & labor,Doubling inputs has more than doubled output,Economies of scale exist for large producers,74,Chapter 6,Returns to Scale in the Carpet,,,Returns to Scale in the Carpet Industry,Small Manufacturers,Small increases in scale have little or no impact on output,Proportional increases in inputs increase output proportionally,Constant returns to scale for small producers,75,Chapter 6,Returns to Scale in the Carpet,,,Summary,A,production function,describes the maximum output a firm can produce for each specified combination of inputs.,An,isoquant,is a curve that shows all combinations of inputs that yield a given level of output.,76,Chapter 6,SummaryA production function d,,,Summary,Average product of labor,measures the productivity of the average worker, whereas,marginal product of labor,measures the productivity of the last worker added.,77,Chapter 6,SummaryAverage product of labo,,,Summary,The,law of diminishing returns,explains that the marginal product of an input eventually diminishes as its quantity is increased.,78,Chapter 6,SummaryThe law of diminishing,,,Summary,Isoquants always slope downward because the marginal product of all inputs is positive.,The standard of living that a country can attain for its citizens is closely related to its level of productivity.,79,Chapter 6,SummaryIsoquants always slope,,,Summary,In long-run analysis, we tend to focus on the firm’s choice of its scale or size of operation.,80,Chapter 6,SummaryIn long-run analysis, w,,,End of Chapter 6,,Production,End of Chapter 6Production,81,。