Chapter 5 Production And Cost Analysis In The Short Run
Production and Cost Analysis in the Short-Run
Chapter 5
Production Function
2
A production function describes the relationship between a flow of inputs and the resulting flow of outputs in a production process during a given period of time.
Q = f(L, K, M, …) where Q = quantity of output
L = quantity of labor input
K = quantity of capital input M = quantity of materials input Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Fixed and Variable Inputs
A fixed
input is an input whose quantity a manager cannot change during a given period of time.
3
A variable
input is an input whose quantity a manager can change during a given period of time.
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Short-Run vs. Long-Run
The
short-run is a period of time during which at least one input is fixed, while the long-run is a period of time during which all inputs are variable. 4
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Total Product
The
total quantity of output produced with given quantities of fixed and variable inputs. 5
TP or Q = f(L, K ), where
TP or Q = total product or total quantity produced L = quantity of labor input (variable)
K = quantity of capital
(fixed)
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Average Product
The
amount of output per unit of variable input. APL = TP÷L or Q÷L, where APL = average product of labor
6
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Marginal Product
The
additional output produced with an additional unit of variable input.
7
MPL = ΔTP÷ΔL or
ΔQ÷ΔL
where
MPL = marginal product of labor
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Total Product Curve
8
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Average and Marginal Product
Curves
9
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Law of Diminishing
Chapter 5
Production Function
2
A production function describes the relationship between a flow of inputs and the resulting flow of outputs in a production process during a given period of time.
Q = f(L, K, M, …) where Q = quantity of output
L = quantity of labor input
K = quantity of capital input M = quantity of materials input Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Fixed and Variable Inputs
A fixed
input is an input whose quantity a manager cannot change during a given period of time.
3
A variable
input is an input whose quantity a manager can change during a given period of time.
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Short-Run vs. Long-Run
The
short-run is a period of time during which at least one input is fixed, while the long-run is a period of time during which all inputs are variable. 4
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Total Product
The
total quantity of output produced with given quantities of fixed and variable inputs. 5
TP or Q = f(L, K ), where
TP or Q = total product or total quantity produced L = quantity of labor input (variable)
K = quantity of capital
(fixed)
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Average Product
The
amount of output per unit of variable input. APL = TP÷L or Q÷L, where APL = average product of labor
6
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Marginal Product
The
additional output produced with an additional unit of variable input.
7
MPL = ΔTP÷ΔL or
ΔQ÷ΔL
where
MPL = marginal product of labor
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Total Product Curve
8
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Average and Marginal Product
Curves
9
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Law of Diminishing