- •Chapter 6 production teaching notes
- •Review questions
- •1. What is a production function? How does a long-run production function differ from a short-run production function?
- •2. Why is the marginal product of labor likely to increase and then decline in the short run?
- •3. Diminishing returns to a single factor of production and constant returns to scale are not inconsistent. Discuss.
- •5. Faced with constantly changing conditions, why would a firm ever keep any factors fixed? What determines whether a factor is fixed or variable?
- •6. How does the curvature of an isoquant relate to the marginal rate of technical substitution?
- •7. Can a firm have a production function that exhibits increasing returns to scale, constant returns to scale, and decreasing returns to scale as output increases? Discuss.
- •8. Give an example of a production process in which the short run involves a day or a week and the long run any period longer than a week.
- •Exercises
- •2. Fill in the gaps in the table below.
- •5. The marginal product of labor is known to be greater than the average product of labor at a given level of employment. Is the average product increasing or decreasing? Explain.
- •7. Do the following production functions exhibit decreasing, constant or increasing returns to scale?
- •8. The production function for the personal computers of disk, Inc., is given by
- •9. In Example 6.3, wheat is produced according to the production function
Chapter 6: Production
Chapter 6 production teaching notes
Chapter 6 is the first of the three chapters which present the basic theory of supply. It may be beneficial to first review, or summarize, the derivation of demand and present an overview of the theory of competitive supply. The review can be beneficial given the similarities between the theory of demand and the theory of supply. Students often find that the theory of supply is easier to understand because it is less abstract, and the concepts are more familiar. This in turn can improve the students’ understanding of the theory of demand when they go back and review it again.
In this chapter it is important to take the time to carefully go through the definitions, as this will be the foundation for what is done in the next two chapters. While the concept of a production function is not difficult, the mathematical and graphical representation can sometimes be confusing. It helps to take the time to do as many examples as you have time for. When describing and graphing the production function with output on the vertical axis and one input on the horizontal axis, point out that the production function is the equation for the boundary of the production set, and hence defines the highest level of output for any given level of inputs. Technical efficiency is assumed throughout the discussion of the theory of supply. At any time you can introduce a discussion of the importance of improving productivity and the concept of learning by doing. Examples 1 and 2 in the text are also good for discussion.
Graphing the production function leads naturally to a discussion of marginal product and diminishing returns. Emphasize that diminishing returns exist because some factors are fixed by definition, and that diminishing returns does not mean negative returns. If you have not discussed marginal utility, now is the time to make sure that the student knows the difference between average and marginal. An example that captures students’ attention is the relationship between average and marginal test scores. If their latest mid-term grade is greater than their average grade to date, this will increase their average.
Though isoquants are defined in the first section of the chapter, they are examined in more detail in the last section of the chapter. Rely on the students’ understanding of indifference curves when discussing isoquants, and point out that as with indifference curves, isoquants are a two-dimensional representation of a three-dimensional production function. Key concepts in this last section of the chapter are the marginal rate of technical substitution and returns to scale. Do as many concrete examples as you have time for to help explain these two important concepts. Examples 6.3 and 6.4 help to give concrete meaning to MRTS and returns to scale.
Review questions
1. What is a production function? How does a long-run production function differ from a short-run production function?
A production function represents how inputs are transformed into outputs by a firm. We focus on the firm with one output and aggregate all inputs or factors of production into one of several categories, such as labor, capital, and materials. In the short run, one or more factors of production cannot be changed. As time goes by, the firm has the opportunity to change the levels of all inputs. In the long-run production function, all inputs are variable.