Production in the short run

Production defn

any activity that creates present or future utility (can be tangible/intangible)

The Production function bg (defn , input + output defn)

the rlstionship combining inputs to make outputs

inputs → FOP

outputs → the resulting objects that give us utility

The production function

Q (output) = F(a constant) (K (capital), L(labour))

raw materials (intermediate products) needed to make output as well but not incl in our model

Fixed / Variable inputs as it pertains to SR and LR

SR → At least 1 input (usually K) cant change

LR → All inputs variable

What does production look like in the SR (3 gen properties)

• assumption : capital fixed → K fixed @ K₀

• Use this to simplify fnction

• Law of diminishing marg

3 gen properties of sr production fncts

1. Pass thru origin

2. At the start → + additional units variable input increase output @ increasing rate

3. After a pt of inflexion → Law of Diminishing marginal returns (to wtv var input) - xtra units var input increase output @ decreasing rate

Thomas Malthus views on technology + why he was wrong

His 1978 argument : pop growth would lead to mass starvation

why hes wrong : tech advancement shift production fnc up so @ same lvl var input more can be produced

TP , MP , AP

TP → Production function - TP = Q

tot output as fnct of amount of var input

AP → TP/L (in gen : variable unit used in production)

• = m of a ray from origin to any pt on TP

• AP inc @ inc rate then stops - more labour added to fixed cap ; productivity falls at a pt

MP → delta TP due to 1 unit delta in var input ( delta Q/ delta L)

• = slope of TP

• max @ point of inflexion on TP

• cuts x axis @ TP peak

• continous MP when delta L rlly small : dQ/dL

AP + MP relationship

• MP > AP → AP rising

• MP < AP → AP falling

• MP = AP → turning pt of AP

How resources allocated

• keep doing the allocation (production process) yielding the highest MP → go until MP equal for all processes