1 / 9

Short-run & long-run increases in output

Short-run & long-run increases in output. MPP. Increase. 20. 20. 15. 25. 10. 30. 5. 35. Diminishing returns to variable factor. Increasing returns to scale. Introductory Economic Lecture 14. Recap. The ‘scale’ of Production And ‘return’ to scale. The Location decision.

isadora-prosper
Download Presentation

Short-run & long-run increases in output

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Short-run & long-run increases in output MPP Increase 20 20 15 25 10 30 5 35 Diminishing returns to variable factor Increasing returns to scale

  2. Introductory Economic Lecture 14

  3. Recap

  4. The ‘scale’ of Production And ‘return’ to scale

  5. The Location decision

  6. Industry size And ‘External’ Economics of scale

  7. The Optimum Combination of Factors: The marginal Product Approach

  8. It would be possible to reduce cost per unit of output by using a different combination of labor and capital MPPK MPPL if ≠ PL PK EXAMPLE MPPK MPPL if > PL PK More labor should be used relative to capital, since the firm is getting a greater physical return for its money from using extra workers than it is getting from using extra capital. However as more and more labor is used, diminishing returns to labor set in. Thus MPPL will fall. Likewise, as less capital is used, MPPK will rise. Until Technical or productive efficiency point MPPL MPPK = PL PK

  9. Multi factor case MPPa MPPb MPPc MPPn = = = Pa Pb Pc Pn Where a . . . n are different factors of production

More Related