Production with two variable inputs, Microeconomics

Production with Two Variable Inputs

*  There is relationship between productivity and production.

*  Long run production K& L are variable.

*  Isoquants analyze and compare different combinations of K & L and output

989_shape ofisoquants.png

Diminishing Marginal Rate of Substitution

- Reading Isoquant Model

 1)   Assume capital is 3 and labor increases from 0 to 1 to 2 to 3.  

- Notice output increases at decreasing rate (55, 20, 15) illustrating diminishing returns from labor in the short run and long-run.

2)    Assume that the labor is 3 and capital increases from 0 to 1 to 2 to 3.

- Output increases at the decreasing rate (55, 20, 15) because of diminishing returns from capital.

*  Substituting Among Inputs

- Managers want to determine the combination if inputs to use.  

- They should deal with the tradeoff between inputs.

- The slope of each isoquant gives tradeoff between 2 inputs while keeping the output constant.

- The marginal rate(MR) of technical substitution can be given by:

Marginal Rate of Technical Substitution
1058_marginal rate of technical substitution.png

Observations:

1. Increasing labor in one unit increments from 1 to 5 results in a decreasing MRTS from 1 to 1/2.

2. Diminishing MRTS occurs because of diminishing returns and implies isoquants are convex. 

Posted Date: 10/12/2012 1:04:49 AM | Location : United States







Related Discussions:- Production with two variable inputs, Assignment Help, Ask Question on Production with two variable inputs, Get Answer, Expert's Help, Production with two variable inputs Discussions

Write discussion on Production with two variable inputs
Your posts are moderated
Related Questions
Consider a hypothetical ABC economy in which the narrowly-defined measure of the  money supply (M1), as defined in the Canadian sense, in existence is 1250$ million. Assuming the e

How much does it cost

What is Laffer curve The Laffer curve is named after Professor Art Laffer who suggested that as taxes enhanced from fairly low levels, tax revenue received by the government wo

Explain why both the PES and PED tend to be inelastic in the short run for primary goods. PED deals with (primarily) the ability and propensity of consumers to switch to other

Given that TC=1000+10Q-0.9Q^2+0.04Q^3,,Find the rate of output Q that result in minimum Average variable cost

How is microeconomics differed from macroeconomics? Microeconomics focuses onto how decisions are made through individuals and firms and the effects of those decisions. For exa

Australians are turning to scooters to combat escalating petrol prices. After a slump in the March quarter this year, demand for scooters was up by more than 7 per cent in the firs

Q. What do you meant by Retained Earnings? Retained Earnings: Business profits that aren't distributed to shareholders (by dividends or other pay-outs) thoughinstead are retain

Slope of an Iso-quant: Since along an iso-quant the level of output remains the same, if θL units of θL are substituted for K units of K, the increase in output due to θ L

Problem 1: (a) Explain the meaning of inflation. (b) "Inflation is always and everywhere a monetary phenomenon." Discuss this statement. (c) Briefly explain the link betw