平狄克微观经济学Investment Time and Capital MarketsPPT.ppt

Chapter 15 Producer Equilibrium – Competitive Input Markets Ratio of marginal products is the same as the marginal rate of technical substitution of labor for capital: Producer Equilibrium – Competitive Input Markets The MRTS is the slope of the isoquant, so competitive equilibrium exists only if: Slopes of the isoquants are equal to one another These also equal the ratio of the prices of two inputs Competitive equilibrium lies on the production contract curve, and the competitive equilibrium is efficient in production Production Possibilities Frontier PPF shows the various combinations of two goods that can be produced with fixed quantities of inputs Frontier is derived from the production contract curve Points on PPF show efficiently produced levels of both goods Production Possibilities Frontier Clothing(units) Food (units) Point A is inefficient Points B, C and D are efficient All points in triangle ABC completely utilize capital and labor, but distortion in labor market leads to inefficient use OF OC D C B A Production Possibilities Frontier PPF is downward sloping In order to produce more of one good, must give up producing some of the other good PPF is concave Slope is the MRTS which increases as the level of production of food increases Production Possibilities Frontier Marginal rate of transformation (MRT) of food for clothing is the magnitude of the slope of the frontier at each point Amount of one good that must be given up to produce one additional unit of a second good How much clothing must be given up to produce one additional unit of food As we increase the production of food by moving along the PPF, the MRT increases Marginal Rate of Transformation The productivity of labor and capital differs depending on whether the inputs are used to produce more food or clothing Starting where only clothing is produced, MP of labor and capital are relatively low Transferring some to food production where MP is relatively high As we do this, MP in food decreas