Slide 1Slide 2Slide 3Slide 4Slide 5Slide 6Slide 7Slide 8Slide 9Slide 10Slide 11Slide 12Slide 13Slide 14Group-Clicker Question (P): What does the decision-maker want?Group-Clicker Question (P): What can the decision-maker have?Slide 17Slide 18Slide 19Slide 20Slide 21Slide 22Slide 23Slide 24Slide 25Slide 26Slide 27Slide 28Slide 29Slide 30Slide 31Slide 32Slide 33Slide 34Slide 35Slide 36Slide 37Slide 38Slide 39Slide 40Slide 41Slide 42Slide 43Slide 44Slide 45Slide 46Slide 47Slide 48Slide 49Slide 50Slide 51Slide 52Slide 53Slide 54Slide 55Slide 56Slide 57Slide 58Slide 59Slide 60Slide 61Slide 62Slide 63Slide 64Slide 65Slide 66Slide 67Slide 68Slide 69Slide 70Slide 71Slide 72Slide 73Slide 74Slide 75Slide 76Slide 77Slide 78Slide 79Slide 80Slide 81Slide 82Slide 83Slide 84Slide 85Slide 86Slide 87Slide 88Slide 89Slide 90Slide 91Slide 92Slide 93Slide 94Slide 95Slide 96Slide 97Slide 98Slide 99Slide 100Slide 101Slide 102Slide 103Slide 104Slide 105Slide 106Slide 107Slide 108Group-Clicker Question (1 pt): Facing a 50/50 lottery (for instance, win $100 with a 50% chance, lose $100 with a 50% chance), an individual’s risk premium will always be the same, regardless of what their income level is.0%0%ECON 410 Production Fundamentals“The myth of unlimited production brings war in its train as inevitably as clouds announce a storm.” –Albert Camus1.True2.False2Midterm 2Midterm 2 on Thursday, Feb. 273Midterm 2Overflow RoomThe overflow rooms are the same as Midterm 1. If you were in before, you’re still in. Overflow RoomThe overflow rooms are the same as Midterm 1. If you were in before, you’re still in.4Open QuestionsWhat if we are being strategic? (I don’t want to work but my boss wants me to)Class 18 - Production FunctionsHow are prices set?How will a Firm (comprised of people) behave?5Individual ChoiceIndividual ChoiceWhat you wantWhat you wantFoundationFoundationStructureStructurePatternsPatternsWhat you can haveWhat you can haveBudget SetBudget SetBudget LineBudget LineWhat you will chooseWhat you will chooseOptimal BundleOptimal BundleBehavior ChangesBehavior ChangesWhy you will chooseWhy you will chooseFirm ChoiceFirm ChoiceGame TheoryGame TheoryClass 18 - Production Functions6Class 18 - Production FunctionsConsumer Theory How do Individuals make decisions when their decisions only affect themselves?Consumer Theory How do Individuals make decisions when their decisions only affect themselves?Producer TheoryHow do Firms make decisions when their decisions only affect themselves?Producer TheoryHow do Firms make decisions when their decisions only affect themselves?Game Theory: How do Individuals/Firms make strategic decisions?Price7Class 18 - Production FunctionsWhat goods firms purchase, given they face tradeoffs?8Class 18 - Production FunctionsMathematical AnalogyOf the bundles a firm can afford, which maximizes its Utility?What goods firms purchase, given they face tradeoffs?�a b2112UUpp=1 1 2 20I px p x- - =9Class 18 - Production FunctionsConsumer ProblemProducer ProblemDecision-Maker: An Individual Decision-Maker: A FirmPreferences: Things Preferences: ProfitsEnjoyment: From Consuming ThingsEnjoyment: From Selling Things for ProfitBasis for Preferences: Willy-NillyBasis for Preferences: Technology, Engineering, Processes, etc.10Individual ChoiceIndividual ChoiceFirm ChoiceFirm ChoiceGame TheoryGame TheoryClass 18 - Production FunctionsMarketingMarketingSalesSalesDistributionDistributionOperationsOperationsFinanceFinanceHuman ResourcesHuman ResourcesITITR&DR&D11Individual ChoiceIndividual ChoiceFirm ChoiceFirm ChoiceGame TheoryGame TheoryClass 18 - Production FunctionsMarketingMarketingSalesSalesDistributionDistributionOperationsOperationsFinanceFinanceHuman ResourcesHuman ResourcesITITR&DR&DGiven that we must produce a specific amount of our product, what’s the cheapest way to do it?12Individual ChoiceIndividual ChoiceWhat you wantWhat you wantFoundationFoundationStructureStructurePatternsPatternsWhat you can haveWhat you can haveBudget SetBudget SetBudget LineBudget LineWhat you will chooseWhat you will chooseOptimal BundleOptimal BundleBehavior ChangesBehavior ChangesWhy you will chooseWhy you will chooseFirm ChoiceFirm ChoiceGame TheoryGame TheoryClass 18 - Production Functions13Individual ChoiceIndividual ChoiceFirm ChoiceFirm ChoiceWhat you wantWhat you wantFoundationFoundationStructureStructurePatternsPatternsWhat you can haveWhat you can haveBudget SetBudget SetBudget LineBudget LineWhat you will chooseWhat you will chooseOptimal BundleOptimal BundleBehavior ChangesBehavior ChangesWhy you will chooseWhy you will chooseGame TheoryGame TheoryClass 18 - Production Functions14Individual ChoiceIndividual ChoiceFirm ChoiceFirm ChoiceWhat you wantWhat you wantFoundationFoundationStructureStructurePatternsPatternsWhat you can haveWhat you can haveBudget SetBudget SetBudget LineBudget LineWhat you will chooseWhat you will chooseOptimal BundleOptimal BundleBehavior ChangesBehavior ChangesWhy you will chooseWhy you will chooseGame TheoryGame TheoryIndividual ChoiceIndividual ChoiceFirm ChoiceFirm ChoiceWhat you wantWhat you wantFoundationFoundationStructureStructurePatternsPatternsWhat you can haveWhat you can haveFoundationFoundationStructureStructurePatternsPatternsWhat you will chooseWhat you will chooseOptimal BundleOptimal BundleBehavior ChangesBehavior ChangesWhy you will chooseWhy you will chooseGame TheoryGame TheoryClass 18 - Production FunctionsGroup-Clicker Question (P): What does the decision-maker want?Given that we must produce a specific amount of our product, what’s the cheapest way to do it?1. To produce a specific amount of the product.2. The lowest possible cost.3. Happy customers.Group-Clicker Question (P): What can the decision-maker have?Given that we must produce a specific amount of our product, what’s the cheapest way to do it?1. Any combination of production inputs that produces the specified amount of the product.2. Any combination of production inputs that results in the lowest cost.3. A level of output that minimizes costs.17Individual ChoiceIndividual ChoiceFirm ChoiceFirm ChoiceWhat you wantWhat you wantFoundationFoundationStructureStructurePatternsPatternsWhat you can haveWhat you can haveBudget SetBudget SetBudget LineBudget LineWhat you will chooseWhat you will chooseOptimal BundleOptimal BundleBehavior ChangesBehavior ChangesWhy you will chooseWhy you will chooseGame TheoryGame TheoryIndividual ChoiceIndividual ChoiceFirm ChoiceFirm