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The Theory
and
Estimation of Production
Chapter Six
Overview
The production function
Short-run analysis of average
and marginal product
Long-run production function
Importance of production
function in managerial decision
making
Chapter Six
Learning objectives
define the production function
explain the various forms of production
functions
provide examples of types of inputs into a
production function for a manufacturing or
service company
Chapter Six
Learning objectives
Chapter Six
Production function
Chapter Six
Production function
Key assumptions
Chapter Six
Production function
Q = output
X = labor
Y = capital
Chapter Six
Production function
Chapter Six
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if MP > AP then AP
is rising
if MP < AP then AP
is falling
MP=AP when AP is
maximized
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MP P
TRP
X
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MRP = MLC
Copyright 2009 Pearson Education, Inc.
Publishing as Prentice Hall.
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Example: Zara
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service activity
production function is
Q = f(X,Y)
where Q = number of calls
X = variable inputs
Y = fixed input
Copyright 2009 Pearson Education, Inc.
Publishing as Prentice Hall.
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