tailieunhanh - Lecture Managerial economics (9th edition): Chapter 8 – Thomas, Maurice

Chapter 8 - Production and cost in the short run. When you finish this chapter, you should: Understand the information given by a production function; explain two efficiency concepts: technical efficiency and economic efficiency; define and give examples of three types of inputs used in production: variable inputs, fixed inputs, and quasi-fixed inputs;. | Chapter 8 Production & Cost in the Short Run Basic Concepts of Production Theory Production function Maximum amount of output that can be produced from any specified set of inputs, given existing technology Technical efficiency Achieved when maximum amount of output is produced with a given combination of inputs Economic efficiency Achieved when firm is producing a given output at the lowest possible total cost 8- Basic Concepts of Production Theory Inputs are considered variable or fixed depending on how readily their usage can be changed Variable input An input for which the level of usage may be changed quite readily Fixed input An input for which the level of usage cannot readily be changed and which must be paid even if no output is produced Quasi-fixed input An input employed in a fixed amount for any positive level of output that need not be paid if output is zero 8- Basic Concepts of Production Theory Short run At least one input is fixed All changes in output achieved | Chapter 8 Production & Cost in the Short Run Basic Concepts of Production Theory Production function Maximum amount of output that can be produced from any specified set of inputs, given existing technology Technical efficiency Achieved when maximum amount of output is produced with a given combination of inputs Economic efficiency Achieved when firm is producing a given output at the lowest possible total cost 8- Basic Concepts of Production Theory Inputs are considered variable or fixed depending on how readily their usage can be changed Variable input An input for which the level of usage may be changed quite readily Fixed input An input for which the level of usage cannot readily be changed and which must be paid even if no output is produced Quasi-fixed input An input employed in a fixed amount for any positive level of output that need not be paid if output is zero 8- Basic Concepts of Production Theory Short run At least one input is fixed All changes in output achieved by changing usage of variable inputs Long run All inputs are variable Output changed by varying usage of all inputs 8- Short Run Production In the short run, capital is fixed Only changes in the variable labor input can change the level of output Short run production function 8- Average & Marginal Products Average product of labor AP = Q/L Marginal product of labor MP = Q/ L When AP is rising, MP is greater than AP When AP is falling, MP is less than AP When AP reaches it maximum, AP = MP Law of diminishing marginal product As usage of a variable input increases, a point is reached beyond which its marginal product decreases 8- Total, Average, & Marginal Products of Labor, K = 2 (Table ) Number of workers (L) Total product (Q) Average product (AP=Q/L) Marginal product (MP= Q/ L) 0 0 1 52 2 112 3 170 4 220 5 258 6 286 7 304 8 314 9 318 10 314 -- 55 52 56 -- 50 38 52 60 58 28 18 10 4 -4 8- Total, Average & Marginal Products, K = 2 .