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Warren

In: Business and Management

Submitted By bobz
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Chap 7 : producer theory consumers maximize their utility producers maximize their profits profit = revenue - costs the key element in max profit is production efficiency production function is technology used to enable a company to turn a bundle of factors of production -> inputs into output factors of production = Labor (L) + Capital (K) in the short run labor is a variable cost. capital is a fixed cost. production function q = f(K,L) producer => maximize his profits given K and L. marginal product of labor = change in q / change in labor given fixed K.

in the long run : all costs are variable bundle (K,L) of factors of production that maximize our profits isoquants -> sets of production obtained with different technologies (combination of K and L) the slope of isoquant is MRTS ( marignal rate of technological substitution) = change in K/ change in L

not on slides:
Slope = MRTS => - Change in K/ change in L economy of scale : q = (K,L)
1) constant returns to scale f(2K,2L) = 2q
2) increasing returns to scale -> come from specialization
F(2K,2L) >2q
3) decreasing returns to scale -> maturing firm
F(2K,2L)<2q

C(q) = F(wL + rK) w = wage per hour r= rental rate per hour
FC = rK fixed cost
VC = wL(q)
TC = rK + wL(q)
MC = change in cost/ change in quantity = w * (change in cost/ change in q) = wage / marginal product of labor

marginal product of labor = change in q/ change in…...

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