ec4004 2008 lecture 9 production
TRANSCRIPT
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EC4004 Lecture 9Production
Dr Stephen Kinsella
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Last Time
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Game Theory
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Prisoner’s DilemmaMatching Pennies
Battle of Sexes
{Players, Strategies, Payoffs}Nash Eqm,Subgame Perf . EqmBackward Induction
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Production.
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?
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Production Function
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production function, a mathematical relationship between inputs and outputs.
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Combine Capital
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Combine Capital
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Combine Capital
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Combine Capital and Labour
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Combine Capital and Labour to produce
output
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q :output of a particular good during a period,
K: capital used
L: labour input
M: raw materials
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MarginalProducts
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Diminishing Marginal Product
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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
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Isoquant Maps
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Capitalper week
KAA
B q = 10 KB
Labourper weekLBLA
0
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Capitalper week
KAA
B q = 10 KB
Labourper weekLBLA
0
q = 20
q = 30
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Rate of Technical Substitution
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The RTS and Marginal Products
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Demo
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Remember:
Diminishing Marginal Utility, Indifference Curves, Marginal Rate of Substitution
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Constant Returns to Scale
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Capitalper week
4
A
321
Laborper week1 2 3
(a) Constant Returns to Scale
40q = 10
q = 20
q = 30q = 40
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Decreasing Returns to Scale
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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
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Increasing Returns to Scale
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Capitalper week
K2
A
q2
q1
q0
K1
K0
Laborper weekL0 L1 L2
0
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Capitalper week
K1
A
q’0
q0
K0
Laborper weekL1 L00
Technical Change
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CostsDo 7.1, 7.2, 7.7Read Chapter 8
Next Time
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EC4004 Lecture 9Production
Dr Stephen Kinsella