L14

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# L14 - PowerPoint PPT Presentation

L14. Technology. Technology. Producers: have a technology A technology - a process converting inputs to an output Typical Inputs: labor, physical and human capital, land, R&amp;D, marketing capital To make our life simpler: only two inputs capital ( ) and labor ( )

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## PowerPoint Slideshow about ' L14' - eli

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Presentation Transcript

### L14

Technology

Technology
• Producers: have a technology
• A technology - a process converting inputs to an output
• Typical Inputs:labor, physical and human capital, land, R&D, marketing capital
• To make our life simpler: only two inputs

capital ( ) and labor ( )

• Technology given by production function
3 Classic Examples

Cobb-Douglass

Fixed Proportions

Perfect Substitutes

3 Classic Examples

Cobb-Douglass

Fixed Proportions

Perfect Substitutes

Marginal Product
• MPK andMPL
• Economic Interpretation of MPK – how much product goes up if K increases by 1
• MPL analogous but for L
• Geometric Interpretation
MPK Increasing, Constant, Decreasing?

Cobb-Douglass

More generally

MPK Increasing, Constant, Decreasing?

Fixed Proportions

Perfect Substitutes

Technical Rate of Substitution
• TRS: slope of isoquant
• Interpretation:
• Formula:
What’s new?
• Long run and Short run ( fixed)
• Monotone transformation? Nooooo!
• Constant Returns to Scale (CRS)
• Increasing (IRS), Decreasing (DRS)