微观经济学Production.pptVIP

Chapter 6 Chapter 6 Production Topics to be Discussed The Technology of Production Production with One Variable Input (Labor) Isoquants Production with Two Variable Inputs Returns to Scale Introduction Our study of consumer behavior was broken down into 3 steps: Describing consumer preferences Consumers face budget constraints Consumers choose to maximize utility Production decisions of a firm are similar to consumer decisions Can also be broken down into three steps Production Decisions of a Firm Production Technology Describe how inputs can be transformed into outputs Inputs: land, labor, capital and raw materials Outputs: cars, desks, books, etc. Firms can produce different amounts of outputs using different combinations of inputs Production Decisions of a Firm Cost Constraints Firms must consider prices of labor, capital and other inputs Firms want to minimize total production costs partly determined by input prices As consumers must consider budget constraints, firms must be concerned about costs of production Production Decisions of a Firm Input Choices Given input prices and production technology, the firm must choose how much of each input to use in producing output Given prices of different inputs, the firm may choose different combinations of inputs to minimize costs If labor is cheap, firm may choose to produce with more labor and less capital Production Decisions of a Firm If a firm is a cost minimizer, we can also study How total costs of production vary with output How the firm chooses the quantity to maximize its profits We can represent the firm’s production technology in the form of a production function The Technology of Production Production Function: Indicates the highest output (q) that a firm can produce for every specified combination of inputs For simplicity, we will consider only labor (L) and capital (K) Shows what is technically feasible when the firm operates efficiently The Technology of Production The production function for two inpu