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PRODUCT - PRODUCT DECISIONS

A. In The Previous Discussion , We Consider The Economic Relationship Between One Input And Two Products . B. We Found The Optimum Production Point (Max Profits ) In Three Ways. 1. Highest Revenue Combination 2. Marg Rate Of Prod Substitution 3. Prod Poss Tangent To Iso-rev

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PRODUCT - PRODUCT DECISIONS

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    1. PRODUCT - PRODUCT DECISIONS 7-1 OPTIMUM LEVEL OF 2 PRODUCTS (PRODUCT SUBSTITUTION)

    2. A. In The Previous Discussion , We Consider The Economic Relationship Between One Input And Two Products WK 7-1 OPTIMUM PRODUCT COMBINATIONS

    3. A. Find Total Revenue By Adding The Revenue For The Two Products WK 7-1 OPTIMUM PRODUCT COMBINATIONS

    4. 3. GRAPHICALLY

    5. PART 4: PRODUCERS’ DECISIONS TOPIC A: FACTOR – PRODUCT RELATIONSHIP

    8. Increasing Opportunity Costs

    10. To Represent An Increase In Revenue , You Would Draw Iso-revenue Lines At Higher Levels That Represent A Shift Up

    11. To Represent An Decrease In Revenue , You Would Draw Iso-revenue Lines At Lower Levels That Represent A Shift Down

    12. C. INCREASES IN PRICE OF Y1 Increases In Price Of Y1, Will Cause The Iso-revenue Line To Pivot Down. You Need To Sell Less Of Product Y1 To Maintain Same Revenue. Thus The Iso - Revenue Line Will Be Tangent To A Different Product Combination

    13. D. Decreases In Price Of Y1 Decreases In Price Of Y1, Will Cause The Iso-revenue Line To Pivot Up. You Will Need To Sell More Of Y1 To Keep Revenue Constant. Thus The Iso - Revenue Line Will Be Tangent To A Different Product Combination

    14. E. Increases In Price Of Y2 Increases In Price Of Y2, Will Cause The Iso-revenue Line To Pivot Down As A Result, You Need To Sell Less Of Product Y2 To Maintain Revenue. Thus The Iso - Revenue Line Will Be Tangent To A Differnt Production Combination

    15. F. Decreases In Price Ofy2 Decreases In Price Of Y2, Will Cause The Iso-revenue Line To Pivot Right As A Result, You Will Be Able To Sell More Of Product Y2. Thus The Iso - Revenue Line Will Be Tangent To A Higher Production Combination

    16. II. Changes Affecting Product - Product

    18. $1400 = 1.40 $1400 = 2.80 $1500 = 5.00 (MB) $1000 1.00 $ 500 = 1.00 $ 300 = 1.00 (MC) Prd 1(Corn) Prd 2 (Wheat) Prd 3 (Soys)

    19. OPTIMUM PRODUCTION RULES FOR MAXIMUM PROFIT IV. One Resource Producing Multiple Products

    20. Optimum Product Rules For Maximum Profit 1. One Resource Producing One Product Optimum Output Level: Inc Output Until The Added Cost (Marg Cost) = Marginal Revenue (Selling Price) 2. One Resource Producing Two Products A. Pick Highest Revenue Combination B. Match Product Substitution Ratio To Inv Price Ratio 3. One Resource Producing Multiple Products A. Allocate To Product With Highest Return B. Allocate Until Break-even For All Products

    21. Optimum Production Decisions View Points I. Viewed From Inputs II. Viewed From Outputs

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