【正文】 4 5 6 7 8 9 10 1 Total Product 60 112 A B C D Production: One Variable Input 169。 AP is at its maximum ?At 8 units, MP is zero and output is at max 169。2020 Pearson Education, Inc. Chapter 6 25 Product Curves ?Geometric relationship between total product and marginal product ?The marginal product is the slope of the line tangent to any corresponding point on the total product curve ?For 2 units of labor, MP = 30/2 = 15 which is slope of total product curve at point A 169。2020 Pearson Education, Inc. Chapter 6 29 Law of Diminishing Marginal Returns ?Typically applies only for the short run when one variable input is fixed ?Can be used for longrun decisions to evaluate the tradeoffs of different plant configurations ?Assumes the quality of the variable input is constant 169。2020 Pearson Education, Inc. Chapter 6 33 Malthus and the Food Crisis ?Malthus predicted mass hunger and starvation as diminishing returns limited agricultural output and the population continued to grow ?Why did Malthus’ prediction fail? ?Did not take into account changes in technology ?Although he was right about diminishing marginal returns to labor 169。2020 Pearson Education, Inc. Chapter 6 37 Labor Productivity in Developed Countries 169。2020 Pearson Education, Inc. Chapter 6 41 Production: Two Variable Inputs ?The information can be represented graphically using isoquants ?Curves showing all possible binations of inputs that yield the same output ?Curves are smooth to allow for use of fractional inputs ?Curve 1 shows all possible binations of labor and capital that will produce 55 units of output 169。2020 Pearson Education, Inc. Chapter 6 43 Production: Two Variable Inputs ?Diminishing Returns to Labor with Isoquants ?Holding capital at 3 and increasing labor from 0 to 1 to 2 to 3 ?Output increases at a decreasing rate (0, 55, 20, 15) illustrating diminishing marginal returns from labor in the short run and long run 169。2020 Pearson Education, Inc. Chapter 6 47 Production: Two Variable Inputs ?Substituting Among Inputs ?Slope of the isoquant shows how one input can be substituted for the other and keep the level of output the same ?The negative of the slope is the marginal rate of technical substitution (MRTS) ? Amount by which the quantity of one input can be reduced when one extra unit of another input is used, so that output remains constant 169。 MRTS decreases as move down the indifference curve 1 1 1 1 2 1 2/3 1/3 Q1 =55 Q2 =75 Q3 =90 169。2020 Pearson Education, Inc. Chapter 6 54 MRTS and Marginal Products ?If we are holding output constant, the effect of increasing labor and decreasing capital must be zero ?Using changes in output from capital and labor we can see 0 K))(( M P L))(( M P KL ????169。2020 Pearson Education, Inc. Chapter 6 58 Isoquants: Special Cases 2. Perfect Complements ? Fixed proportions production function ? There is no substitution available between inputs ? The output can be made with only a specific proportion of capital and labor ? Cannot increase output unless increase both capital and labor in that specific proportion 169。2020 Pearson Education, Inc. Chapter 6 62 Isoquant Describing the Production of Wheat Capital Labor 250 500 760 1000 40 80 120 100 90 Output = 13,800 bushels per year A 10 K ??B 260 L ??Point A is more capitalintensive, and B is more laborintensive. 169。2020 Pearson Education, Inc. Chapter 6 66 Returns to Scale ?Increasing returns to scale: output more than doubles when all inputs are doubled ?Larger output associated with lower cost (cars) ?One firm is more efficient than many (utilities) ?The isoquants get closer together 169。2020 Pearson Education, Inc. Chapter 6 70 Returns to Scale ?Decreasing returns to scale: output less than doubles when all inputs are doubled ? Decreasing efficiency with large size ? Reduction of entrepreneurial abilities ? Isoquants bee farther apart 169。2020 Pearson Education, Inc. Chapter 6 74 Returns to Scale: Carpet Industry ?Some growth can be explained by returns to scale ?Carpet production is highly capital intensive ?Heavy upfront investment in machines for carpet production ?Increases in scale of operating have occurred by putting in larger and more efficient machines into larger plants 169。2020 Pearson Education, Inc. Chapter 6 79 Topics to be Discussed ?Measuring Cost: Which Costs Matter? ?Cost in the Short Run ?Cost in the Long Run ?LongRun Versus ShortRun Cost Curves 169。2020 Pearson Education, Inc. Chapter 6 83 Measuring Cost: Which Costs Matter? ?For a firm to minimize costs, we must clarify what is meant by costs and how to measure them ?It is clear that if a firm has to rent equipment or buildings, the rent they pay is a cost ?What if a firm owns its own equipment or building? ? How are costs calculated here? 169。2020 Pearson Education, Inc. Chapter 6 87 Opportunity Cost ?A person starting their own business must take into account the opportunity cost of their time ?Could have worked elsewhere making a petitive salary ?Accountants and economists often treat depreciation differently as well 169。2020 Pearson Education, Inc. Chapter 6 91 Prospective Sunk Cost ?Example (cont.) ?The first building should be purchased ?The $500,000 is a sunk cost and should not be considered in the decision to buy ?What should be considered is ?Spending an additional $5,250,000 or ?Spending an additional $5,000,000 169。2020 Pearson Education, Inc. Chapter 6 95 Fixed Cost Versus Sunk Cost ?Fixed cost and sunk cost are often confused ?Fixed Cost ?Cost paid by a firm that is in business regardless of the level of output ?Sunk Cost ?Cost that has been incurred and cannot be recovered 169