ISOQUANT: An isoquant shows different combinations of two factors of production L & K that yield the same amount of output Q. Isoquants are level curves.

Slides:



Advertisements
Similar presentations
1 Chapter 6: Firms and Production Firms’ goal is to maximize their profit. Profit function: π= R – C = P*Q – C(Q) where R is revenue, C is cost, P is price,
Advertisements

Chapter 18 Technology First understand the technology constraint of a firm. Later we will talk about constraints imposed by consumers and firm’s competitors.
Slide 1Copyright © 2004 McGraw-Hill Ryerson Limited Chapter 9 Production.
1 A Closer Look at Production and Costs CHAPTER 7 Appendix © 2003 South-Western/Thomson Learning.
International Economics Tenth Edition
CONSUMERS EQUILIBRIUM When a consumer gets maximum satisfaction out of a commodity. This situation is known as consumer equilibrium.
1 Chapter 7 Behind the Supply Curve: 2 Recall: Optimal Consumer Behavior Consumer Behavior –(behind the demand curve): Consumption of G&S (Q) produces.
Production Theory 2.
Technology and Production
Chapter 8 Production.
Production Theory 1. Short-Run v. Long-Run u Fixed input/factor of production: quantity of input is fixed regardless of required output level, e.g. capital.
Chapter 6 Inputs and Production Functions.
Chapter Eighteen Technology. Technologies  A technology is a process by which inputs are converted to an output  E.g. seed, chemical fertilizer, pesticides,
Firms and Production Perloff Chapter 6.
Production ECO61 Microeconomic Analysis Udayan Roy Fall 2008.
MICROECONOMICS: Theory & Applications Chapter 7 Production By Edgar K. Browning & Mark A. Zupan John Wiley & Sons, Inc. 9 th Edition, copyright 2006 PowerPoint.
Topic 6 : Production and Cost
Utility.
Labor Demand in the Long Run. The long run in the long run, all inputs are variable, model used in discussion has 2 inputs: L (labor) and K (capital).
PRODUCTION.
Managerial Economics & Business Strategy
All Rights ReservedMicroeconomics © Oxford University Press Malaysia, – 1 Theory of Production 6 CHAPTER.
Chapter 9 Production. Chapter Outline The Production Function Production In The Short Run Production In The Long Run Returns To Scale 9-2.
1 Production APEC 3001 Summer 2007 Readings: Chapter 9 &Appendix in Frank.
Chapter 7 Technology and Production Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written.
Section 3 – Theory of the Firm
PPA 723: Managerial Economics Lecture 10: Production.
10.1 Chapter 10 –Theory of Production and Cost in the Long Run(LR)  The theory of production in the LR provides the theoretical basis for firm decision-making.
Chapter 6 Production. The Production Function A production function tells us the maximum output a firm can produce (in a given period) given available.
Chapter 18 TECHNOLOGY.
Chapter 7 Technology and Production McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.
THE DISCOVERY OF PRODUCTION AND ITS TECHNOLOGY CHAPTER 8.
8. Production functions Econ 494 Spring 2013
Theory of the Firm 1) How a firm makes cost- minimizing production decisions. 2) How its costs vary with output. Chapter 6: Production: How to combine.
Chapter 1 Production.
1 Chapter 7 Technology and Production 1. 2 Production Technologies Firms produce products or services, outputs they can sell profitably A firm’s production.
Production Chapter 9. Production Defined as any activity that creates present or future utility The chapter describes the production possibilities available.
Chapter 6 Production. ©2005 Pearson Education, Inc. Chapter 62 Topics to be Discussed The Technology of Production Production with One Variable Input.
Lecture 6 Producer Theory Theory of Firm. The main objective of firm is to maximize profit Firms engage in production process. To maximize profit firms.
Chapter 6 PRODUCTION.
Production Chapter 6.
Isoquants, Isocosts and Cost Minimization
Production Theory and Estimation
Outline of presentation (9/23/2010) Production Factors of production Production function Production graph – shifts Characteristics of production function.
The Production Process. Production Analysis Production Function Q = f(K,L) Describes available technology and feasible means of converting inputs into.
PowerPoint Slides by Robert F. BrookerCopyright (c) 2001 by Harcourt, Inc. All rights reserved. The Organization of Production Inputs –Labor, Capital,
AAEC 2305 Fundamentals of Ag Economics Chapter 6 Multiple Inputs & Outputs.
Chapter 6 Production. Chapter 6Slide 2 The Technology of Production The Production Process Combining inputs or factors of production to achieve an output.
Various capital and labor combinations to produce 5000 units of output abcde Units of capital (K) Units of labor (L)
Chapter 6 Production. Chapter 6Slide 2 Topics to be Discussed The Technology of Production Isoquants Production with One Variable Input (Labor) Production.
Production Function Multiple Variable Input  The 3D production function can be compressed into a set of isoquants plotted in a 2D (K,L) space.  An isoquant.
Total Product Marginal Product Average Product Production or Output Elasticity TP = Q = f(L) MP L =  TP  L AP L = TP L E L = MP L AP L.
Production & Costs Continued… Agenda: I.Consumer and Producer Theory: similarities and differences II. Isoquants & The Marginal Rate of Technical Substitution.
Econ 102 SY Lecture 7 Profit Maximization and Supply August 21, 24 and 28, 2008.
Introduction to Neoclassical Trade Theory: Tools to Be Employed Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin.
1 Part 2 ___________________________________________________________________________ ___________________________________________________________________________.
Theory of the Firm Theory of the Firm: How a firm makes cost-minimizing production decisions; how its costs vary with output. Chapter 6: Production: How.
Chapter 7 Technology and Production McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Chapter 7 Technology Intermediate Microeconomics:
Chapter 19 Technology Key Concept: Production function
Chapter 6 Production.
18 Technology.
Molly W. Dahl Georgetown University Econ 101 – Spring 2009
18 Technology.
Chapter 7 PRODUCTION FUNCTIONS.
Production.
CHAPTER 5 THEORY OF PRODUCTION. CHAPTER 5 THEORY OF PRODUCTION.
Chapter 8 Production.
Chapter 19 Technology.
Presentation transcript:

ISOQUANT: An isoquant shows different combinations of two factors of production L & K that yield the same amount of output Q. Isoquants are level curves of the production function Q = F(L, K) much like indifference curves are level curves of the utility function.

Properties of Isoquants: (Compare and Contrast with Indifference Curves) They are negatively sloped. They are convex to the origin (Diminishing MRTS) They do not cross. Higher curves (to the NE) correspond to greater levels of output. Are Positive Monotonic Transforms meaningful?

Marginal rate of Technical Substitution: MRTS L, K : The MRTS L, K is defined as the amount of K one must give up to gain one unit of L such that total output remains unchanged. –The MRTS at a given combination of L & K is just the slope of the isoquant at that point.

Returns to Scale: rate at which output changes when all inputs are scaled up or down. Increasing Returns to Scale: When all inputs are scaled up by X% output increases more than proportionately (more than X%) Decreasing returns to Scale: When all inputs are scaled up by X% output increases less than proportionately (less than X%)

Homogeneity: A function Q = F(K, L) is said to be homogeneous of degree K if scaling all inputs up by some factor Alpha results in output going up by alpha raised to the Kth power.