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UB ECO 182 - 7. Firms,Technologies,Costs_&_Supply

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Firms’ Technologies, Production Costs and Supply DecisionsUpon What Does Market Supply Depend?Slide 3What is a Technology?Production Functions.The Bathtub Firm’s Production Function.Slide 7Slide 8Slide 9The Firm’s Production FunctionSlide 11Slide 12Slide 13Slide 14Slide 15Slide 16Marginal Products of Labor.Slide 18Slide 19Slide 20Slide 21Slide 22Slide 23Slide 24Slide 25Slide 26Slide 27Slide 28Slide 29Marginal Products of LaborSlide 31Slide 32Slide 33Exercises on Marginal Products.Slide 35Slide 36Slide 37Slide 38Slide 39Slide 40Slide 41Slide 42Slide 43Slide 44Slide 45Slide 46Slide 47Slide 48Slide 49Slide 50Slide 51Slide 52Slide 53Slide 54Slide 55Marginal Products and Marginal Costs of Production.Slide 57Slide 58Slide 59Slide 60Slide 61Slide 62Slide 63Slide 64Slide 65Slide 66Slide 67Slide 68Slide 69Slide 70Slide 71Slide 72Slide 73Slide 74Slide 75Slide 76Slide 77Slide 78Slide 79Marginal Costs of ProductionSlide 81Slide 82Slide 83Slide 84Slide 85Slide 86Slide 87Exercises on Marginal Costs of Production.Slide 89Supply DecisionsSlide 91Slide 92Slide 93Slide 94Slide 95Marginal Products and Marginal Costs of ProductionSlide 97Slide 98Slide 99Slide 100Slide 101Slide 102Slide 103Slide 104Slide 105Slide 106Slide 107Slide 108Slide 109Slide 110Slide 111Slide 112Slide 113Slide 114Slide 115Slide 116Slide 117Slide 118Slide 119Slide 120Slide 121Slide 122Slide 123Slide 124Fixed, Variable & Total CostsSlide 126Slide 127Slide 128Slide 129Slide 130Slide 131Slide 132Slide 133Slide 134Slide 135Slide 136Slide 137Slide 138Slide 139Slide 140Slide 141Slide 142Slide 143Slide 144Slide 145Slide 146Slide 147Slide 148Slide 149Slide 150Fixed, Variable & Total Cost CurvesFixed, Variable and Total Cost CurvesExercises on Fixed, Variable & Total CostsSlide 154Slide 155Slide 156Slide 157Slide 158Slide 159Slide 160Slide 161Slide 162Slide 163Slide 164Slide 165Firms’ Technologies, Production Costs and Supply DecisionsHow Does a Firm Decide Quantity Supplied and What Does it Cost?Upon What Does Market Supply Depend?•The quantity supplied to the market is the sum of the quantities supplied by individual firms.•So to understand a market supply curve we must understand how individual firms decide the quantities that they supply.Upon What Does Market Supply Depend?•How does an individual firm decide how much to produce?•Upon what will this decision depend?–The price of the firm’s product.–The prices of the firm’s inputs.–The firm’s technology.What is a Technology?•A technology is any process by which inputs are combined to produce an output.•Often various technologies exist for producing the same product.•E.g. how many technologies are there for producing a mown lawn?•And how many technologies are there for producing lectures?Production Functions.•A technology is any process by which inputs are combined to produce an output.•The relationship between quantities of inputs used and the quantity of output produced is called a firm’s PRODUCTION FUNCTION.The Bathtub Firm’s Production Function.•The relationship between quantities of inputs used and the quantity of output produced is called a firm’s PRODUCTION FUNCTION.•Our bathtub firm is restricted to using just one machine but can vary the quantity of labor it uses in order to alter the number of bathtubs produced.The Bathtub Firm’s Production Function.Production Functions.•Whenever a firm can vary the quantity used of an input, that input is said to be VARIABLE.•Whenever a firm cannot vary the quantity used of an input, that input is said to be FIXED.The Bathtub Firm’s Production Function.MachineUnits Used(FIXED)Labor UnitsUsed(VARIABLE)Total No.BathtubsProduced1 0 01 1 41 2 101 3 161 4 201 5 231 6 251 7 261 8 26The Firm’s Production FunctionLabor UnitsLBathtubs0 1 2 3 4 5 6 7 826 2625232016104One bath-making machine.Production Functions.•Would you pay to hire the 8th labor unit?The Firm’s Production FunctionLabor UnitsLBathtubs0 1 2 3 4 5 6 7 826 2625232016104One bath-making machine.Production Functions.•Would you pay to hire the 8th labor unit? No.Production Functions.•Would you pay to hire the 8th labor unit? No.•Would you hire the 7th labor unit? Upon what would this decision depend?The Firm’s Production FunctionLabor UnitsLBathtubs0 1 2 3 4 5 6 7 826 2625232016104One bath-making machine.Production Functions.•Would you pay to hire the 8th labor unit? No.•Would you hire the 7th labor unit? Upon what would this decision depend? The extra cost of hiring the 7th labor unit and the extra revenue generated by the 7th labor unit.Marginal Products of Labor.•The MARGINAL PRODUCT of a labor unit is the extra quantity of output obtained from that one extra labor unit.The Bathtub Firm’s Production Function.MachineUnits Used(FIXED)Labor UnitsUsed(VARIABLE)Total No.BathtubsProduced1 0 01 1 41 2 101 3 161 4 201 5 231 6 251 7 261 8 26Marginal Products of Labor.•The MARGINAL PRODUCT of a labor unit is the extra quantity of output obtained from that one extra labor unit.•What is the firm’s output level when it uses 3 labor units?•What is the firm’s output level when it uses 4 labor units?•What is the extra output added by the 4th labor unit?Marginal Products of Labor.•The MARGINAL PRODUCT of a labor unit is the extra quantity of output obtained from that one extra labor unit.•What is the firm’s output level when it uses 3 labor units? 16 bathtubs.•What is the firm’s output level when it uses 4 labor units?•What is the extra output added by the 4th labor unit?Marginal Products of Labor.•The MARGINAL PRODUCT of a labor unit is the extra quantity of output obtained from that one extra labor unit.•What is the firm’s output level when it uses 3 labor units? 16 bathtubs.•What is the firm’s output level when it uses 4 labor units? 20 bathtubs.•What is the extra output added by the 4th labor unit?Marginal Products of Labor.•The MARGINAL PRODUCT of a labor unit is the extra quantity of output obtained from that one extra labor unit.•What is the firm’s output level when it uses 3 labor units? 16 bathtubs.•What is the firm’s output level when it uses 4 labor units? 20 bathtubs.•What is the extra output added by the 4th labor unit? +4 bathtubs.The Bathtub Firm’s Production Function.MachineUnits Used(FIXED)Labor UnitsUsed(VARIABLE)Total No.BathtubsProduced1 0 01 1 41 2 101 3 161 4 201 5 231 6 251 7 261 8 26+4+4Marginal Products of Labor.•The MARGINAL PRODUCT of a


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