2.4) The cost that a company would incur to purchase one unit of the resource used to produce a good is called the marginal resource cost. In many cases, these extra resources are the sources of labor and the costs incurred are the salaries paid to the employees. Organizations ensure that their marginal resource cost is equal to or less than the amount it takes to produce one more unit of the product.
MRC= Change in total cost/Change in inputs
When more units of variable inputs are used the marginal cost first decreases and then decreases.
Marginal revenue product is the additional revenue generated from using one more unit of the input. It is given by change in total revenue divided by the change in number of inputs.
MRP=MP*MR(Marginal product …show more content…
An isoquant is a curve that show all the combinations of inputs that yield the same level of output. ‘Iso’ means equal and ‘quant’ means quantity. Therefore, an isoquant represents a constant quantity of output. The isoquant curve is also known as an “Equal Product Curve” or “Production Indifference Curve” or Iso-Product Curve.” The above figures represent different shapes of isoquant.
The Linear Isoquant(sky blue)- Assumes perfect substitutability of factors of production and a given commodity may be produced by using only capital or labor or by an infinite combination of both.
The input-output isoquant (Red)- Assumes zero substitutability of factors of production and there is only one method of production of any one commodity.
The kinked isoquant (Blue and Green)- Assumes limited substitutability of K and L and there are few processes of producing anyone commodity.
The Convex Isoquant (Green)- Assumes continuous substitutability of factors of production over a certain beyond which factors cannot substitute each …show more content…
If points G, J, L, N, H, К, M and P are connected with the lines OA and OB, they are the ridge lines. On both sides of the ridge lines, it is uneconomic for the firm to produce while it is economically feasible to produce inside the ridge lines.
b)
The Cobb Douglas function is given by: P(L, K) = b*LαKβ where: • P = total production (the monetary value of all goods produced in a year)
• L = labor input (the total number of person-hours worked in a year)
• K = capital input (the monetary worth of all machinery, equipment, and buildings)
• b = total factor productivity
• α and β are the output elasticities of labor and capital, respectively. These values are constants determined by available technology.
In a Cobb Douglas production function the factor intensity is measured by the ratio α/ β. The higher the ratio the more labor intensive the technique and similarly the lower the ratio the more capital intensive is the
MRC= Change in total cost/Change in inputs
When more units of variable inputs are used the marginal cost first decreases and then decreases.
Marginal revenue product is the additional revenue generated from using one more unit of the input. It is given by change in total revenue divided by the change in number of inputs.
MRP=MP*MR(Marginal product …show more content…
An isoquant is a curve that show all the combinations of inputs that yield the same level of output. ‘Iso’ means equal and ‘quant’ means quantity. Therefore, an isoquant represents a constant quantity of output. The isoquant curve is also known as an “Equal Product Curve” or “Production Indifference Curve” or Iso-Product Curve.” The above figures represent different shapes of isoquant.
The Linear Isoquant(sky blue)- Assumes perfect substitutability of factors of production and a given commodity may be produced by using only capital or labor or by an infinite combination of both.
The input-output isoquant (Red)- Assumes zero substitutability of factors of production and there is only one method of production of any one commodity.
The kinked isoquant (Blue and Green)- Assumes limited substitutability of K and L and there are few processes of producing anyone commodity.
The Convex Isoquant (Green)- Assumes continuous substitutability of factors of production over a certain beyond which factors cannot substitute each …show more content…
If points G, J, L, N, H, К, M and P are connected with the lines OA and OB, they are the ridge lines. On both sides of the ridge lines, it is uneconomic for the firm to produce while it is economically feasible to produce inside the ridge lines.
b)
The Cobb Douglas function is given by: P(L, K) = b*LαKβ where: • P = total production (the monetary value of all goods produced in a year)
• L = labor input (the total number of person-hours worked in a year)
• K = capital input (the monetary worth of all machinery, equipment, and buildings)
• b = total factor productivity
• α and β are the output elasticities of labor and capital, respectively. These values are constants determined by available technology.
In a Cobb Douglas production function the factor intensity is measured by the ratio α/ β. The higher the ratio the more labor intensive the technique and similarly the lower the ratio the more capital intensive is the