Study Guides (256,125)
CA (124,550)
UTSG (8,510)
ECO (570)
ECO200Y1 (72)

summary

22 Pages
140 Views

Department
Economics
Course Code
ECO200Y1
Professor
W.G.Wolfson

This preview shows pages 1-3. Sign up to view the full 22 pages of the document.
ECO200Y1b - Theory of the Firm.doc
Page 1 of 22
Productivity Curves
Definitions
Very short run:
(
)
LKqq ,= perfectly inelastic supply curve.
Short run:
(
)
LKqq ,=.
Long run:
(
)
LKqq ,=.
Very long run:
(
)
LKqq ,= the production function q itself changes.
SHORT RUN PRODUCTIVITY CURVES
Total productivity:
(
)
LKqqTP
L
,== .
Average productivity:
L
q
L
TP
AP L
L== .
Marginal productivity:
L
q
L
TP
MPL
L
=
= decreases (diminishing marginal return).
Inputs Firm Output
Production Function
(
)
,, 21 xxqq =
www.notesolution.com
ECO200Y1b - Theory of the Firm.doc
Page 2 of 22
LONG RUN PRODUCTIVITY CURVES
In the long run,
(
)
LKqq ,= there are various levels of K and L to produce a specific level of output.
Isoquants
Hold q constant and see what combinations of K and L are required.
MPL
L
APL MPL
APL
APL
TPL
MPL
L
L
L
www.notesolution.com
ECO200Y1b - Theory of the Firm.doc
Page 3 of 22
(
)
LKqq ,=.
12 qq > q2 represents a higher output.
Negatively sloped if K decreases, L must
increase to keep q constant.
L
K
MP
MP
MRTS
K
L
KL
=== /
slope.
Convex because of the law of diminishing returns
MRTS decreases as L increases and K
decreases.
Non-Typical Isoquants
Perfect Substitutes
MRTS constant.
Fixed Proportions
MRTS = 0.
RETURNS TO SCALE
Let
(
)
LKqq ,
1= and
(
)
LKqq 2,2
1= amount of inputs are doubled.
Constant return to scale: 12 2qq = (output doubled).
Increasing return to scale: 12 2qq > (output more than doubled).
Decreasing return to scale: 12 2qq < (output less than doubled).
Math Examples of Long Run Production Functions
Constant return to scale:
(
)
LKLKqq == ,.
Increasing return to scale:
(
)
LKLKqq == ,.
Decreasing return to scale:
(
)
3
,LKLKqq == .
Problem
Its impossible for a production function which exhibits increasing returns to scale to also adhere to the law
of diminishing returns. Do you agree?
No, it is possible. The law of diminishing returns is in the short-run, but returns to scale is in the
long-run.
L
K
q2
q1
L
K
q2
q1
ridge line
L
K
q2
q1
www.notesolution.com

Loved by over 2.2 million students

Over 90% improved by at least one letter grade.

Leah — University of Toronto

OneClass has been such a huge help in my studies at UofT especially since I am a transfer student. OneClass is the study buddy I never had before and definitely gives me the extra push to get from a B to an A!

Leah — University of Toronto
Saarim — University of Michigan

Balancing social life With academics can be difficult, that is why I'm so glad that OneClass is out there where I can find the top notes for all of my classes. Now I can be the all-star student I want to be.

Saarim — University of Michigan
Jenna — University of Wisconsin

As a college student living on a college budget, I love how easy it is to earn gift cards just by submitting my notes.

Jenna — University of Wisconsin
Anne — University of California

OneClass has allowed me to catch up with my most difficult course! #lifesaver

Anne — University of California
Description
ECO200Y1b - Theory of the Firm.doc Productivity Curves Inputs Firm Output Production Function q = (x1, 2 ,) Definitions Very short run: q =K, L) perfectly inelastic supply curve. Short run: q =(K, L). Long run: q = (K, L). Very long run: q =(K, L) the production function q itself changes. S HORT R UN P RODUCTIVITY C URVES Total productivity:LTP = q (K, L). TPL q Average productivity: LP = = . L L TP L q Marginal productivity: L L =L decreases (diminishing marginal return). Page 1 of 22 www.notesolution.com ECO200Y1b - Theory of the Firm.doc MP L L TP L L AP L L MP L AP L MPL APL L LONG R UN PRODUCTIVITY C URVES In the long run, qK, L) there are various levels of K and L to produce a specific level of output. Isoquants Hold q constant and see what combinations of K and L are required. Page 2 of 22 www.notesolution.com
More Less
Unlock Document


Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

Unlock Document
You're Reading a Preview

Unlock to view full version

Unlock Document

Log In


OR

Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit