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Managerial Economics-Charles W. Upton Properties of Production Functions
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A Tabular Presentation
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Properties of Production Functions A Production Isoquant
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Properties of Production Functions Second Production Isoquant
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Properties of Production Functions Third Production Isoquant
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Properties of Production Functions Some Points on Isoquants
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Properties of Production Functions Constant Returns to Scale Diminishing Marginal Rate of Technical Substitution (MRTS) Diminishing Returns to Proportion
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Properties of Production Functions Constant Returns to Scale
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Properties of Production Functions Constant Returns to Scale
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Properties of Production Functions Constant Returns to Scale
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Properties of Production Functions Constant Returns to Scale Double inputs; double outputs
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Properties of Production Functions Constant Returns to Scale Not always true
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Properties of Production Functions Diminishing Marginal Rate of Technical Substitution (MRTS)
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Properties of Production Functions Diminishing MRTS I replace the first worker with one machine.
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Properties of Production Functions Diminishing MRTS Two machines are required to replace the second.
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Properties of Production Functions Diminishing MRTS Two machines are required to replace the second. The fourth machine substitutes for one worker; the fifth substitutes for half a worker
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Properties of Production Functions Diminishing MRTS This is diminishing marginal rate of technical substitution (MRTS ).
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Properties of Production Functions Diminishing MRTS MRTS is like MRS.
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Properties of Production Functions Diminishing Returns to Proportion Two machines
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Properties of Production Functions Diminishing Returns to Proportion One factor fixed, one variable. A short run production function
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Properties of Production Functions Diminishing Returns to Proportion
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Properties of Production Functions Diminishing Returns to Proportion
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Properties of Production Functions Diminishing Returns to Proportion
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Properties of Production Functions Diminishing Returns to Proportion Average product (AP) and marginal product (MP) are not the same.
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Properties of Production Functions Diminishing Returns to Proportion MP and AP are declining.
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Properties of Production Functions Diminishing Returns to Proportion They may initially rise but must eventually decline.
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Properties of Production Functions Diminishing Returns to Proportion Marginal product can be zero but not negative
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Properties of Production Functions Summary Constant Returns to Scale –Sometimes, but not always
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Properties of Production Functions Summary Constant Returns to Scale –Sometimes, but not always Diminishing MRTS –Always
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Properties of Production Functions Summary Constant Returns to Scale –Sometimes, but not always Diminishing MRTS –Always Diminishing Returns to Proportion –AP and MP eventually must decline.
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Properties of Production Functions The Final Word K L Q1Q1 QoQo Our production isoquants are very smooth; substitution is easy (but diminishing MRTS). While substitution may not always be that smooth, economists would always stress the possibilities of substitution.
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Properties of Production Functions The Final Word K L Q1Q1 QoQo Substitution possibilities abound There is more than one way to Skin a cat Bake a cake Make a widget
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Properties of Production Functions End ©2003 Charles W. Upton
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