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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 ( )

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L14

Technology


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
3 Classic Examples

Cobb-Douglass

Fixed Proportions

Perfect Substitutes


3 classic examples1
3 Classic Examples

Cobb-Douglass

Fixed Proportions

Perfect Substitutes


Marginal product
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
MPK Increasing, Constant, Decreasing?

Cobb-Douglass

More generally


Mpk increasing constant decreasing1
MPK Increasing, Constant, Decreasing?

Fixed Proportions

Perfect Substitutes


Technical rate of substitution
Technical Rate of Substitution

  • TRS: slope of isoquant

  • Interpretation:

  • Formula:


What s new
What’s new?

  • Long run and Short run ( fixed)

  • Monotone transformation? Nooooo!

  • Constant Returns to Scale (CRS)

  • Increasing (IRS), Decreasing (DRS)


Crs geometry
CRS: Geometry

z

2z

L

K