ECON 110: Week 4 Notes
ECON 110: Week 4 Notes ECON 110
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This 3 page Class Notes was uploaded by Connor Workman on Monday February 1, 2016. The Class Notes belongs to ECON 110 at Brigham Young University taught by Professor Arden Pope in Winter 2016. Since its upload, it has received 26 views. For similar materials see Principles of Economics in Economcs at Brigham Young University.
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Date Created: 02/01/16
ECON 110 KEY o <L1>= Lecture 1, </L1>= End of Lecture 1 o <L2>= Lecture 2, </L2>= End of Lecture 2 o * = Important for exams/quizzes. o <L9> Consumer Theory (supply curves) This man was on academic probation for three semesters before he married the top woman in the graduating senior class (she said no twice before she said yes). Becoming a producer is ‘taking some input and creating an output for it’ In this story, we are going to look at a ‘wall hanging thing’ as a function of labor. Plotting that relationship (Labor on x axis and wall hangers on y axis) gives us a relationship between inputs and outputs (graph on upper left- production function) Think about it: at one point you’ll reach a production maximum, where practice at producing the good will not increase production any more. If your labor grows, at some point To find the best place to produce on the graph there are assumptions to be made: Producer is a profit maximizer, producer is a price taker (accept the price of labor and price of goods). o TPP (Total Physical Product- measured in physical units) Know how to visualize the derivative (slope) of the upper left graph, which is shown on the lower left graph. o Total Physical Product= function (labor) [upper left] o Marginal Physical Product= Delta st Function(labor)/Delta (labor) [lower left, 1 line] o Average Physical Product= function (labor)/ (labor) [Lower left, 2dline] o *“It is important to make sure you can do this” Total physical product can be changed to total value output by replacing the number of units in the y axis with the number of units in the x axis. What price does the labor have to be to make money? (not at a, but b on the lower left graph) o </L9> o <L10> Production Functions Continued Quiz What is your name? Draw a Total Physical Product, marginal physical product, and Average physical product line. o The marginal Physical Product is the derivative of the Total physical product. IE, the inflection point of the Total is the max of the marginal, and the max of the Total is zero for the Marginal. o The average Physical Product is the amount of output divided by labor. This means that directly before the slope starts to decrease is the max. Marginal value product (value comes in when we begin thinking in dollars. How much more will I make per unit of labor? Average Value product On average how much you’re making per unit of labor. Factor input demand curve This is the downward sloping curve that is between the intersection point of MVP and AVP, following the MVP until it hits the price of labor (which is a horizontal flat line, meaning price of labor per laborer). o </L10> o <L11> TA Lecture (Professor Pope is gone for today) Review of Total Physical Product, Average Physical Product, Marginal Physical Product, Total value product, average value product, marginal value product. (value is the same as physical, but with dollars instead of units of inventory produced) Now we’re going to use a table to illustrate and calculate the same info. Labor TPP MPP APP TVP MVP AVP Profit (pi) @100/250 0 0 --------------0 ------------ 0 / 0 - - - -- 1 2 2 2 200 200 200 100 / -50 2 5 3 2.5 500 300 250 300 / 0 3 10 5 3.33 1000 500 333 700 / 250 4 16 6 4 1600 600 400 1200 / 600 5 19 3 3.80 1900 300 380 1400 / 650 6 21 3 3.50 2100 300 350 1500 / 600 7 22 1 3.14 2200 100 314 1500 / 450 8 22 0 2.75 2200 0 275 1400 / 200 9 20 -2 2.22 2000 -200 222 1100 / -250 Marginal Physical Product: (change in output)/(change in labor) Average Physical Product: (total output)/(total labor) Total Value Product: (price of inventory)*(Total Physical Product) Marginal Value Product:(price of inventory)*(Marginal Physical Product) Average Value Product:(Price of inventory)*(Average Physical Product) Profit (represented as pi): o (Total value product)-[(price of labor)(number of laborers)] The Highlighted row is the most efficient! Questions he can ask--- o If the price of labor is ____, how much will we produce? (our only input is labor) Price Optimal profit (labor) Labor * (Pi) 500 0 0 100 7 (6 or 7) 1500 250 5 650 o </L11>
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