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Chapter 19
Technology (Production with 1 input (2 demensions, f(x)…
Chapter 19
Technology
The firm
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The firm faces technological constrains - for a given combination of inputs, it can only produce a certain amount of output
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Production with 1 input
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The area under f(x) is the production set - representing all output possible for a given input quantity x
Iso-quants
The set of all input combinations that produce the same level of output. For an output level of k, the equation for the isoquant would be f(x1,x2)=k
Properties of Technology
If a technology is convex, then any weighted average of two input combinations that produce the same output will produce at least as much output
If a technology is monotonic, increasing inputs will increase output
Marginal product
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Typically, the marginal product of input i is positive and decreases in input i. The second condition is called diminishing marginal product
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Returns to Scale
if tf(x1,x2) > f(tx1,tx2) => decreasing returns to scale
if tf(x1,x2) = f(tx1,tx2) => constant returns to scale
if tf(x1,x2) < f(tx1,tx2) => increasing returns to scale
Short v.s. Long Run
In the SR, at lest 1 factor of production is fixed
In the LR, all factors of production are variable