Lecture 11
In the short run, the capital input is xed, so we only need to consider the change of labor. Therefore, the production function q = F (K, L) has only one variable L (see Figure 1). Average Product of Labor. APL = Slope from the origin to (L,q). Marginal Product of Labor. M PL = Output q = . Labor Input L Output q = . Labor Input L
Additional output produced by an additional unit of labor. Some properties about AP and M P (see Figure 2). When M P = 0, Output is maximized. When M P > AP, AP is increasing.
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Two variable inputs in long run (see Figure 3). Isoquants. Curves showing all possible combinations of inputs that yield the same output (see Figure 4). Marginal Rate of Technical Substitution (M RT S ). Slope of Isoquants. dK dL How many units of K can be reduced to keep Q constant when we increase L by one unit. Like M RS , we also have M RT S = M RT S = M PL . M Pk
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Figure 5: Isoquant Curve, Perfect Substitutes. Perfect Complements (Inputs). (see Figure 6)
Returns to Scale
q (K, L) K
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Figure 6: Isoquant Curve, Perfect Complements. Marginal Product of Capital L constant , K q ? What happens to q when both inputs are increased? K , L q? Increasing Returns to Scale. A production function is said to have increasing returns to scale if Q(2K, 2L) > 2Q(K, L), or Q(aK, aL) = 2Q(K, L), a < 2. One big rm is more ecient than many small rms. Isoquants get closer as we move away from the origin (see Figure 7).
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