Chapter 18
Technology
Inputs and outputs.
Factors of production:
land, labor, capital,
raw materials,
and so on.
A production set p321
Y=
Output
Y = f (X ) = production function
Production set
X = Input
Examples of technology
(isoquants analysis):

Fixed proportions,
 Perfect substitutes,
 Cobb-Douglas.

Figs. p322
Fixed proportion
x2
Isoquants
x1
Perfect subsitutes
x2
Isoquants
x1
Assumptions of technology:
monotonic (free disposal),
and convex. p324
x2
a2
(a1/2 + b1/2 , a2/2 + b2/2)
b2
isoquant
a1
b1
x1
The marginal
product,
MPi = d y / d x i . Y is output
The technical
rate of
substitution (TRS):
 With
d y = 0 along any isoquant,
TRS (x1, x2 ) = d x2 / d x1
= – MP1 (x1, x2) / MP2 (x1, x2 ).
The long run (LR)
and
the short run (SR)
Returns to scale:
Increasing, decreasing, and
constant:
>
f(tx)<tf(x)
=
Chapter 19
Profit
Maximization
The organization of firms:
Proprietorships,
partnerships,
corporations.
SR profit maximization
π=
py - w1x1 - w2x2
 y = π/ p + w2x2 / p + w1x1 / p
describes isoprofit lines,
max x1π gives pMP1 = w1.

Fig. p337
Profit maximization
Isoprofit lines
slope = w1/p
Output
y*
y = f (x1, x2)
π/p+w2x2/p
Production function
x1*
x1
Optimum lies on the
tangency of an isoprofit line
and the production function.
P324 Comparative statics:
 Increasing
p increases x1 and then y.
 Increasing
w1 reduces x1,
and thus the factor demand curve follows.
 LR:
both x1 and x2 are variable.
 Figs.
Comparative statics
产品价格
要素价格
f(x1)
f(x1)
High w1 Low w
1
A
x1
Low p
High p
B
x1