Post on 25-Dec-2015
transcript
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Supply concept
• Supply: offer of goods at a price
• Goods are produced-output
• Using inputs-- as factors of production—in combination
• Factors include: land, labour, capital, energy, materials, etc.
• Technology of production
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Supply concept
• Scale effect: constant, increasing, decreasing return to scale
• Relation between output and input at different levels of output
• Division of labour as an example:
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Supply concept
• The short run and the long run• Short run: all factors fixed except one• Usually capital/technology are fixed, only
labour variable. Capacity utilization index.• Long run: all factors variable, new
technology• Let’s have some case examples: IT,
automation etc.
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Representation
• Production function
• Relation between output Q and factors of production – labour, capital, materials, energy, nature etc.
• Various functional forms
• Cobb-Douglas, CES, Translog etc.
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Production function
• Example: Q=f(K,L)
• Cobb-Douglas:
• Q=aKL (1-)
• Other forms
• Total, average, marginal product
• Factor substitution as part of technology option-may be possible, may be not.
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Cost function
• Dual of production function• Factors have prices, so can calculate cost of
production• C = wL + rK,• So, what is the production problem?• What combination of factors (what
technology) to choose to produce the output?
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Supply concept
• So far, assume fixed output
• But decision is about how much to produce, with what combination of factors, so need to account for the output side as well
• So, cost expressed in terms of output.
• Total, average, marginal cost, with respect to output.
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Supply concept
• Demand for factors of production-labour, capital
• As derived demand• Demand determined by marginal product of
factor • Consider case of labour, when to employ
new worker? • And capital, when to invest?
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Dynamic perspectives
• Technology on the move, innovations• Types of innovation: product, process• Stable vs. disruptive• Types of technical progress: Hicks-neutral,
capital/labour saving;Harrod-neutral; vintage-embodied/disembodied technical progress
• Measurement of technical progress: growth accounting
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Empirical functions
• Search and destroy mission:
• Find your own production/cost function and write a critique of the study.