EC4004 2008 Lecture 9 Production
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EC4004 Lecture 9 Production Dr Stephen Kinsella
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Transcript of EC4004 2008 Lecture 9 Production
EC4004 Lecture 9Production
Dr Stephen Kinsella
Last Time
Game Theory
Prisoner’s DilemmaMatching Pennies
Battle of Sexes
{Players, Strategies, Payoffs}Nash Eqm,Subgame Perf . EqmBackward Induction
Production.
?
Production Function
production function, a mathematical relationship between inputs and outputs.
Combine Capital
Combine Capital
Combine Capital
Combine Capital and Labour
Combine Capital and Labour to produce
output
q :output of a particular good during a period,
K: capital used
L: labour input
M: raw materials
MarginalProducts
Diminishing Marginal Product
Outputper week
Labor inputper week
TotalOutput
L*(a) Total outputMPL
L*(b) Marginal product
Relationship between Output and Labour Inputs Holding Other Inputs Constant
Labor input per week
Isoquant Maps
Capitalper week
KAA
B q = 10 KB
Labourper weekLBLA
0
Capitalper week
KAA
B q = 10 KB
Labourper weekLBLA
0
q = 20
q = 30
Rate of Technical Substitution
The RTS and Marginal Products
Demo
Remember:
Diminishing Marginal Utility, Indifference Curves, Marginal Rate of Substitution
Constant Returns to Scale
Capitalper week
4
A
321
Laborper week1 2 3
(a) Constant Returns to Scale
40q = 10
q = 20
q = 30q = 40
Decreasing Returns to Scale
Capitalper week
4
A
321
Laborper week1 2 3
(a) Constant Returns to Scale
40
Capitalper week
4
A
321
Laborper week1 2 3
(b) Decreasing Returns to Scale
40q = 10 q = 10
q = 20q = 20q = 30
q = 30q = 40
Increasing Returns to Scale
Capitalper week
K2
A
q2
q1
q0
K1
K0
Laborper weekL0 L1 L2
0
Capitalper week
K1
A
q’0
q0
K0
Laborper weekL1 L00
Technical Change
CostsDo 7.1, 7.2, 7.7Read Chapter 8
Next Time
EC4004 Lecture 9Production
Dr Stephen Kinsella
