1. Chapter 6 Firms and Production

2. © 2004 Pearson Addison-Wesley. All rights reserved6-2 Table 6.1 Total Product, Marginal Product, and Average Product of Labor with Fixed Capital

3. © 2004 Pearson Addison-Wesley. All rights reserved6-3 Figure 6.1 Production Relationships with Variable Labor B A C 11640 L, Workers per day Marginal product,MP L Average product,AP L 110 90 56 (a) b a c 11640 L, Workers per day 20 15 (b) Output, q, Units per day AP L, MP L

4. © 2004 Pearson Addison-Wesley. All rights reserved6-4 Table 6.2 Output Produced with Two Variable Inputs

5. © 2004 Pearson Addison-Wesley. All rights reserved6-5 Figure 6.2 Family of Isoquants e b a d f c 63210L, Workers per day 6 3 2 1 q = 14 q = 24 q = 35 K, Units of capital per day

6. © 2004 Pearson Addison-Wesley. All rights reserved6-6 Figure 6.3 Substitutability of Inputs (a) x, Maine potatoes per day q = 3q = 2q = 1 q (c) L, Labor per unit of time (b) Cereal per day q = 3 q = 2 q = 1 45° line y, Idaho potatoes per day Boxes per day K, Capital per unit of time

7. © 2004 Pearson Addison-Wesley. All rights reserved6-7 Figure 6.3a Substitutability of Inputs (a) x, Maine potatoes per day q = 3q = 2q = 1 y, Idaho potatoes per day

8. © 2004 Pearson Addison-Wesley. All rights reserved6-8 Figure 6.3b Substitutability of Inputs (b) Cereal per day q = 3 q = 2 q = 1 45° line Boxes per day

9. © 2004 Pearson Addison-Wesley. All rights reserved6-9 Figure 6.3c Substitutability of Inputs q = 1 (c) L, Labor per unit of time K, Capital per unit of time

10. © 2004 Pearson Addison-Wesley. All rights reserved6-10 Application (Page 164) Semiconductor Integrated Circuit Isoquants Aligner Stepper Wafer-handling stepper 200 ten-layer chips per day isoquant 813 L, Workers per day 0 K, Units of capital per day

11. © 2004 Pearson Addison-Wesley. All rights reserved6-11 Figure 6.4 How the Marginal Rate of Technical Substitution Varies Along an Isoquant e b  K = – 18 – 7 – 4 – 2  L = 1 d c 63 1 1 1 4520L, Workers per day 39 21 14 10 8 q = 10 a K, Units of capital per day

12. © 2004 Pearson Addison-Wesley. All rights reserved6-12 Application (Page 171) Returns to Scale in Manufacturing

13. © 2004 Pearson Addison-Wesley. All rights reserved Application (Page 171) Returns to Scale in Manufacturing q =100 q = 200 q = 177 500400300200100450350250150500 L, Units of labor per year 600 500 400 300 200 100 (a) Thread Mill: Decreasing Returns to Scale q =100 q = 200 500400300200100450350250150500 L, Units of labor per year 600 500 400 300 200 100 (b) Shoe Factory: Constant Returns to Scale q =100 q = 200 q = 251 500400300200100450350250150500 L, Units of labor per year 600 500 400 300 200 100 (c) Concrete Blocks and Bricks: Increasing Returns to Scale K, Units of capital per year

14. © 2004 Pearson Addison-Wesley. All rights reserved6-14 Application (Page 171) Returns to Scale in Manufacturing q =100 q = 200 q = 177 500400300200100450350250150500 L, Units of labor per year 600 500 400 300 200 100 (a) Thread Mill: Decreasing Returns to Scale K, Units of capital per year

15. © 2004 Pearson Addison-Wesley. All rights reserved6-15 Application (Page 172) Returns to Scale in Manufacturing q =100 q = 200 500400300200100450350250150500 L, Units of labor per year 600 500 400 300 200 100 (b) Shoe Factory: Constant Returns to Scale K, Units of capital per year

16. © 2004 Pearson Addison-Wesley. All rights reserved6-16 Application (Page 172) Returns to Scale in Manufacturing q =100 q = 200 q = 251 500400300200100450350250150500 L, Units of labor per year 600 500 400 300 200 100 (c) Concrete Blocks and Bricks: Increasing Returns to Scale K, Units of capital per year

17. © 2004 Pearson Addison-Wesley. All rights reserved6-17 412 a b d c a ® b: Increasing returns to scale b ® c: Constant returns to scale c ® d: Decreasing returns to scale 8L, Work hours per year 4 2 1 0 8 q = 8 q = 6 q = 3 q =1 Figure 6.5 Varying Scale Economies K, Units of capital per year

18. © 2004 Pearson Addison-Wesley. All rights reserved6-18 Table 6.3 Annual Rates of Productivity Growth