Production with two variable inputs, Microeconomics

Assignment Help:

Production with Two Variable Inputs

*  There is relationship between productivity and production.

*  Long run production K& L are variable.

*  Isoquants analyze and compare different combinations of K & L and output

989_shape ofisoquants.png

Diminishing Marginal Rate of Substitution

- Reading Isoquant Model

 1)   Assume capital is 3 and labor increases from 0 to 1 to 2 to 3.  

- Notice output increases at decreasing rate (55, 20, 15) illustrating diminishing returns from labor in the short run and long-run.

2)    Assume that the labor is 3 and capital increases from 0 to 1 to 2 to 3.

- Output increases at the decreasing rate (55, 20, 15) because of diminishing returns from capital.

*  Substituting Among Inputs

- Managers want to determine the combination if inputs to use.  

- They should deal with the tradeoff between inputs.

- The slope of each isoquant gives tradeoff between 2 inputs while keeping the output constant.

- The marginal rate(MR) of technical substitution can be given by:

Marginal Rate of Technical Substitution
1058_marginal rate of technical substitution.png

Observations:

1. Increasing labor in one unit increments from 1 to 5 results in a decreasing MRTS from 1 to 1/2.

2. Diminishing MRTS occurs because of diminishing returns and implies isoquants are convex. 


Related Discussions:- Production with two variable inputs

Economic theory, How economic theory explain optimum pattern of consumption...

How economic theory explain optimum pattern of consumption for an individual consumer

Various forms of aid a developing country might receive, What are the vario...

What are the various forms of aid a developing country might receive? Here the student must show clearly the difference between grant (donor) aid; reciprocal (tied) aid; bilat

Price elasticity of demend, hoe does the knowledge of price elasticity of d...

hoe does the knowledge of price elasticity of demand important to the government

Dumping, Dumping In the international marketing, when an organization ...

Dumping In the international marketing, when an organization charges less for goods than it real cost or less than the organizations charges in its home market. This procedure

Describe stabilisation policies as by the imf, Describe stabilisation polic...

Describe stabilisation policies as by the International Monetary Fund (IMF). Define stabilisation policies as basically a list of demands set forward by the IMF to a debtor nat

Natural research, Biochemistry is regarded a dull topic. Not many learners ...

Biochemistry is regarded a dull topic. Not many learners like to research it in school since it includes a thorough comprehension of issue and clinical changes in the framework, fr

Law of diminishing marginal utility, law of diminishing marginal utility it...

law of diminishing marginal utility its assumptions, limitation, and its practical importance

Explain capital intensive goods and primary products, What is main differen...

What is main difference between capital intensive goods and primary products?  Primary product means the major product in which the firm is dealing. Capital intensive good mea

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd