Академический Документы
Профессиональный Документы
Культура Документы
7
The Production Process:
The Behavior of
Profit-Maximizing Firms
Prepared by:
© 2007 Prentice Hall Business Publishing Principles of Economics 8 e by Case and Fair
The Production Process:
The Behavior of 7
Profit-Maximizing Firms
Chapter Outline
Choice of Technology
© 2007 Prentice Hall Business Publishing Principles of Economics 8 e by Case and Fair 2 of 33
THE PRODUCTION PROCESS: THE BEHAVIOR
-ti f or Pf o
OF PROFIT-MAXIMIZING FIRMS
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 3 of 33
THE PRODUCTION PROCESS: THE BEHAVIOR
OF PROFIT-MAXIMIZING FIRMS
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 4 of 33
THE PRODUCTION PROCESS: THE BEHAVIOR
OF PROFIT-MAXIMIZING FIRMS
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 5 of 33
THE PRODUCTION PROCESS: THE BEHAVIOR
OF PROFIT-MAXIMIZING FIRMS
Perfect Competition
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 6 of 33
THE PRODUCTION PROCESS: THE BEHAVIOR
-ti f or Pf o
OF PROFIT-MAXIMIZING FIRMS
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 7 of 33
THE BEHAVIOR OF PROFIT-MAXIMIZING FIRMS
1. 2. 3.
How much Which production How much of
output to technology each input to
supply to use demand
FIGURE 7.3 The Three Decisions That All Firms Must Make
-ti f or Pf o
a M
HC
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 8 of 33
THE BEHAVIOR OF PROFIT-MAXIMIZING FIRMS
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 9 of 33
THE BEHAVIOR OF PROFIT-MAXIMIZING FIRMS
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 10 of 33
THE BEHAVIOR OF PROFIT-MAXIMIZING FIRMS
Normal Rate of Return
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 11 of 33
THE BEHAVIOR OF PROFIT-MAXIMIZING FIRMS
the industry.
a M
HC
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 12 of 33
THE BEHAVIOR OF PROFIT-MAXIMIZING FIRMS
determine costs.
HC
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 13 of 33
THE BEHAVIOR OF PROFIT-MAXIMIZING FIRMS
Total revenue
−Total cost with optimal method
= Total profit
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 14 of 33
THE PRODUCTION PROCESS
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 15 of 33
THE PRODUCTION PROCESS
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 16 of 33
THE PRODUCTION PROCESS
0 0 − −
1 10 10 10.0
2 25 15 12.5
3 35 10 11.7
4 40 5 10.0
5 42 2 8.4
6 42 0 7.0
-ti f or Pf o
a M
HC
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 17 of 33
-ti f or Pf o
THE PRODUCTION PROCESS
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 18 of 33
THE PRODUCTION PROCESS
Diminishing returns always apply in the short run, and in the short run every firm will face
diminishing returns. This means that every firm finds it progressively more difficult to
a M
HC
total product
average product of labor =
total units of labor
-ti f or Pf o
a M
HC
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 20 of 33
THE PRODUCTION PROCESS
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 21 of 33
THE PRODUCTION PROCESS
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 22 of 33
CHOICE OF TECHNOLOGY
A 2 10
B 3 6
C 4 4
D 6 3
E 10 2
-ti f or Pf o
a M
HC
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 23 of 33
CHOICE OF TECHNOLOGY
A 2 10 $12 $52
B 3 6 9 33
C 4 4 8 24
D 6 3 9 21
E 10 2 12 20
-ti f or Pf o
Two things determine the cost of production: (1) technologies that are available and (2)
input prices. Profit-maximizing firms will choose the technology that minimizes the cost of
a M
HC
perfect competition
production
a M
HC
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 25 of 33
Appendix
TABLE 7A.1 Alternative Combinations of Capital (K) and Labor (L) Required
to Produce 50, 100, and 150 Units of Output
QX = 50 QX = 100 QX = 150
K L K L K L
A 1 8 2 10 3 10
B 2 5 3 6 4 7
C 3 3 4 4 5 5
D 5 2 6 3 7 4
E 8 1 10 2 10 3
-ti f or Pf o
a M
HC
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 26 of 33
Appendix
Isoquant A graph
that shows all the
combinations of
capital and labor
that can be used
to produce a given
amount of output.
-ti f or Pf o
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 27 of 33
Appendix
Slope of isoquant:
∆K MPL
=−
∆L MPK
marginal rate of
technical substitution
The rate at which a
firm can substitute
capital for labor and
hold output constant.
-ti f or Pf o
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 28 of 33
Appendix
FACTOR PRICES
AND INPUT
COMBINATIONS:
ISOCOSTS
isocost line A
graph that shows all
the combinations of
capital and labor
available for a given
total cost.
-ti f or Pf o
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 29 of 33
Appendix
∆K TC / PK PL
=− =−
∆L TC / PL PK
-ti f or Pf o
a M
HC
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 30 of 33
Appendix
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 31 of 33
-ti f or Pf o
Appendix
FIGURE 7A.6 Minimizing Cost of FIGURE 7A.7 A Cost Curve Shows the
Production for qX = 50, qX Minimum Cost of
= 100, and qX = 150 Producing Each Level of
a M
Output
HC
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 32 of 33
Appendix
MPL PL
σλοπεοφ ισοθυαντ
=− = σλοπεοφ ισοχοστ
=−
MPK PK
MPL PL
Thus, =
MPK PK
MPL MPK
=
PL PK
a M
HC
© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 33 of 33