Lecture 6 - Technology Flashcards

(18 cards)

1
Q

Production Functions

A
  • y denotes the output level
  • The technology’s production function states the maximum amount of output possible from an input bundle
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2
Q

y = f(x)

A

Is the production function

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3
Q

y’ = f(x’)

A

Is the maximal output level obtained from x’ input units

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4
Q

Production plan

A

Is an input bundle and an output level

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5
Q

Technology Set

A

The collection of all feasible production plans is the technology set

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6
Q

y’’ = f(x’)

A

Is an output level that is feasible from x’ input units

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7
Q

Isoquant Map

A
  • The complete collection of isoquants is the isoquant map
  • The isoquant map is equivalent to the production function
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8
Q

Cobb Douglas technologies

A

All isoquants are hyperbolic asymptoting to but never touching any axis

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9
Q

Marginal (physical) Products

A
  • The marginal product of input is the rate of change of the output level as the level of input changes, holding all other input levels fixed
  • Typically the marginal product of one input depends upon the amount used of other inputs
  • The marginal product of input is diminishing if it becomes smaller as the level of input increases
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10
Q

Technical rate of substitution

A
  • The slope is the rate at which input 2 must be given up as input 1’s level is increased so as not to change the output level
  • The slope of an isoquant is its technical rate of substitution
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11
Q

A well behaved technology is

A

Monotonic and convex

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12
Q

Long run

A
  • Is the circumstance in which a firm is unrestricted in its choice of all input levels
  • A useful way to think of the long run is that the firm can choose as it pleases in which short run circumstance to be
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13
Q

Short run

A
  • Is a circumstance in which a firm is restricted in some way in its choice of at least 1 input level
  • There are many possible short runs
  • Examples of restrictions that place a firm into a short run: temporarily being unable to install or remove machinery, being required by law to meet affirmative action quotas, having to meet domestic content regulations
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14
Q

Technology

A

A technology is a process by which inputs are converted to an output e.g. labour, capital

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15
Q

Input bundle

A

An input bundle is a vector of the input levels

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16
Q

Technology with multiple inputs

A
  • The y output unit isoquant is the set of all input bundles that yield at most the same output level y
  • More isoquants tell us more about the technology
17
Q

Returns to scale

A

A single technology can locally exhibit different returns to scale

18
Q

Examples of returns to scale

A
  1. The perfect substitutes production function exhibits constant rts
  2. The perfect complements production function exhibits constant rts
  3. The Cobb Douglas technology’s rts is:
    - constant if a1 +…+ an = 1
    - increasing if a1 +…+ an > 1
    - decreasing if a1 +…+ an < 1