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# Properties of Production Functions - PowerPoint PPT Presentation

Properties of Production Functions. A Tabular Presentation. A Production Isoquant. Second Production Isoquant. Third Production Isoquant. Some Points on Isoquants. Properties of Production Functions. Constant Returns to Scale Diminishing Marginal Rate of Technical Substitution (MRTS)

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### Properties of Production Functions

Lectures in Microeconomics-Charles W. Upton

Properties of Production Functions

Properties of Production Functions

Properties of Production Functions

Properties of Production Functions

Properties of Production Functions

• Constant Returns to Scale

• Diminishing Marginal Rate of Technical Substitution (MRTS)

• Diminishing Returns to Proportion

Properties of Production Functions

Properties of Production Functions

Properties of Production Functions

Properties of Production Functions

Double inputs; double outputs

Properties of Production Functions

Not always true

Properties of Production Functions

Properties of Production Functions

I replace the first worker with one machine.

Properties of Production Functions

Two machines are required to replace the second.

Properties of Production Functions

The fourth machine substitutes for one worker; the fifth substitutes for half a worker

Two machines are required to replace the second.

Properties of Production Functions

This is diminishing marginal rate of technical substitution (MRTS).

Properties of Production Functions

MRTS is like MRS.

Properties of Production Functions

Diminishing Returns to Proportion

Two machines

Properties of Production Functions

Diminishing Returns to Proportion

One factor fixed, one variable. A short run production function

Properties of Production Functions

Diminishing Returns to Proportion

Properties of Production Functions

Diminishing Returns to Proportion

Properties of Production Functions

Diminishing Returns to Proportion

Properties of Production Functions

Diminishing Returns to Proportion

Average product (AP) and marginal product (MP) are not the same.

Properties of Production Functions

Diminishing Returns to Proportion

MP and AP are declining.

Properties of Production Functions

Diminishing Returns to Proportion

They may initially rise but must eventually decline.

Properties of Production Functions

Diminishing Returns to Proportion

Marginal product can be zero but not negative

Properties of Production Functions

• Constant Returns to Scale

• Sometimes, but not always

Properties of Production Functions

• Constant Returns to Scale

• Sometimes, but not always

• Diminishing MRTS

• Always

Properties of Production Functions

• Constant Returns to Scale

• Sometimes, but not always

• Diminishing MRTS

• Always

• Diminishing Returns to Proportion

• AP and MP eventually must decline.

Properties of Production Functions

K

Our production isoquants are very smooth; substitution is easy (but diminishing MRTS).

While substitution may not always be that smooth, economists would always stress the possibilities of substitution.

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Properties of Production Functions

K

• Substitution possibilities abound

• There is more than one way to

• Skin a cat

• Bake a cake

• Make a widget

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Properties of Production Functions

©2003 Charles W. Upton

Properties of Production Functions