Lecture notes
Principles of Microeconomics Lecture 12 – technology part 1
These lecture notes cover the first half of technology.
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Principles of Microeconomics Lecture 12 – technology part 1 A technology is a process by which inputs are converted to an output.
E.g. labor, a computer, electricity, and software are being combined to produce this lecture.
Usually several technologies will produce the same product -- a blackboard and chalk can be used instead of
a computer and a software.
xi denotes the amount used of input i; i.e. the level of input i.
o An input bundle is a vector of the input levels; (x 1, x2, … , xn).
o E.g. (x1, x2, x3) = (6, 0, 3).
y denotes the output level.
The technology’s production function states the maximum amount of output possible from an input bundle.
o
A production plan is an input bundle and an output level; (x 1, … , xn, y).
A production plan is feasible if
o
The collection of all feasible production plans is the technology set.
Isoquant: the set of all input bundles that yield at most the same output level y.
Isoquants can be graphed by adding an output level axis and displaying each isoquant at the height of the
isoquant’s output level.
The complete collection of isoquants is the isoquant map.
The isoquant map is equivalent to the production function -- each is the other.
o
The marginal product of input i is the rate-of-change of the output level as the level of input i changes,
holding all other input levels fixed.
o
The marginal product of input i is diminishing if it becomes smaller as the level of input i increases.
o
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