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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


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A Tabular Presentation

Properties of Production Functions


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A Production Isoquant

Properties of Production Functions


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Second Production Isoquant

Properties of Production Functions


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Third Production Isoquant

Properties of Production Functions


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Some Points on Isoquants

Properties of Production Functions


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Properties of Production Functions

  • Constant Returns to Scale

  • Diminishing Marginal Rate of Technical Substitution (MRTS)

  • Diminishing Returns to Proportion

Properties of Production Functions


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Constant Returns to Scale

Properties of Production Functions


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Constant Returns to Scale

Properties of Production Functions


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Constant Returns to Scale

Properties of Production Functions


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Constant Returns to Scale

Double inputs; double outputs

Properties of Production Functions


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Constant Returns to Scale

Not always true

Properties of Production Functions



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Diminishing MRTS

I replace the first worker with one machine.

Properties of Production Functions


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Diminishing MRTS

Two machines are required to replace the second.

Properties of Production Functions


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Diminishing MRTS

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


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Diminishing MRTS

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

Properties of Production Functions


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Diminishing MRTS

MRTS is like MRS.

Properties of Production Functions


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Diminishing Returns to Proportion

Two machines

Properties of Production Functions


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Diminishing Returns to Proportion

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

Properties of Production Functions


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Diminishing Returns to Proportion

Properties of Production Functions


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Diminishing Returns to Proportion

Properties of Production Functions


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Diminishing Returns to Proportion

Properties of Production Functions


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Diminishing Returns to Proportion

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

Properties of Production Functions


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Diminishing Returns to Proportion

MP and AP are declining.

Properties of Production Functions


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Diminishing Returns to Proportion

They may initially rise but must eventually decline.

Properties of Production Functions


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Diminishing Returns to Proportion

Marginal product can be zero but not negative

Properties of Production Functions


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Summary

  • Constant Returns to Scale

    • Sometimes, but not always

Properties of Production Functions


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Summary

  • Constant Returns to Scale

    • Sometimes, but not always

  • Diminishing MRTS

    • Always

Properties of Production Functions


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Summary

  • 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


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The Final Word

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.

Q1

Qo

L

Properties of Production Functions


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The Final Word

K

  • Substitution possibilities abound

  • There is more than one way to

    • Skin a cat

    • Bake a cake

    • Make a widget

Q1

Qo

L

Properties of Production Functions


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End

©2003 Charles W. Upton

Properties of Production Functions