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
some fields have large enough quantities of both oil and ntural gas taht coordination must be achieved for the production of both, reather than oil alone as in our examples. will f

What are the two main forms of economic distribution? What is the difference between them?   The two major forms of economic distribution are exchange and transfer. Exchange in

I am risk averse, and trying to maximize my expected value of c0, 5, where c is my fortune. I have 50.000 in cash, and also art with a value of 200.000 which I keep in my basement.

Fiera Corporation is evaluating a new project that costs $45,000.  The project will be financed using 40% debt and 60% equity, thus maintaining the firm's current debt-to-equity ra

A newspaper recently lowered its price from 50 cents to 30 cents. As it did, the number of newspapers it sold increased from 240,000 to 280,000. i)   Over this price range what

Graphically illustrate how society decides on the number of police officers to hire

The economy, however, is facing inflationary pressures. To deal with the macroeconomic problem, the government uses expansionary fiscal policy to decrease taxes and, as an indirect

merits and demerits of international trade

Society of International Financial Telecommunications: The foreign exchange market operates worldwide, that is, the reach of the foreign exchange market is global. The foreign

The demand curve for oranges is given by the equation P = 5 - Q/200. The supply curve is given by P = Q/800. Q is measured in oranges per day and price is measured in dollars per o