Category: Micro-Production

  Description This video introduces the concept of returns to scale, which is needed in order to understand how production processes behave in the long run. Also, it shows what the elasticity of returns of scale is, and how to use it. - When dealing with long run production, the main change from short run production is that we can vary the levels of fixed inputs we use (capital, K), as well as variable inputs (labour, L). Our levels of production will be determined by our returns to scale. ...

  Description This video explains the basics of production analysis, focusing on the short run. We first learn how to draw the Average and Marginal productivity, and the explain what the output elasticity is. - The short run is considered the period of time where fixed costs are still fixed, which basically means that, if you have a factory, you have to make do with it because you can neither sell it, nor make it bigger, nor rent half of it: you are stuck with it for the time being. Capital...

  Description This video shows how useful a good understanding of production duality can be. Starting with production maximisation and cost minimisation, this video explores everything you need to understand about production duality. - As in consumer’s theory (where consumption duality is analysed), the firm’s input decision has a dual nature. Finding the optimum levels of inputs, can not only be seen as a question of choosing the lowest isocost line tangent to the production isoquant (as s...

  Description This video explains how cost minimisation works when dealing with production, both from the analytical and graphical points of view. We start analysing cost minimisation as the optimisation problem it is, followed by a graphical analysis of the optimum point of production. - Cost minimisation tries to answer the fundamental question of how to select inputs in order to produce a given output at a minimum cost. A firm’s isocost line shows the cost of hiring factor inputs. This l...

  Description This video explains how production maximisation works, both from the analytical and graphical points of view. We start analysing production maximisation as the optimisation problem it is, followed by a graphical analysis of the optimum point of production. - Production maximisation must be seen as an optimisation problem regarding the production function, represented by isoquants, and a constraint regarding production costs, represented by an isocost line. Producers are theref...

  Description This video explains what the marginal rate of transformation is, and shows its relationship with the production possibility frontier. We also analyse how the marginal rate of transformation determines the opportunity cost in production. - The marginal rate of transformation can be defined as how many units of good x have to stop being produced in order to produce an extra unit of good y, while keeping constant the use of production factors and the technology being used. It inv...

  Description This video explains how to build and analyse the production possibility frontier. We start by explaining the very basics about the production possibility frontier. Then, we show the relation between the marginal rate of transformation and the production possibility frontier. Finally, we explain how to use the Edgeworth box to derive the production possibility frontier. - The production possibility frontier represents the quantity of output that can be obtained for a certain qu...

  Description This video shows what isocost lines are, and how important they are when analysing production. We start learning about the budgetary restriction they represent, and explain what happens when the cost of inputs change. - Isocost lines show combinations of productive inputs that cost the same amount. They are the same concept as budget restrictions when looking at consumer behaviour. In this case, r is the cost of capital and w is the cost of labour. Generally, we think of r as ...

  Description This video explains how to calculate and use the marginal rate of technical substitution. We start by learning how to calculate it, then move on to use it in order to properly draw isoquant curves and, finally, we analyse the marginal rate of technical substitution for different kinds of isoquants. - The marginal rate of technical substitution can be defined as, keeping constant the total output, how much input 1 have to decrease if input 2 increases by one extra unit. In othe...

  Description This video explains how to determine the economic region of production, using isoquants and isoclines. It also analyses marginal productivity of inputs, and how this may change the production process. - The economic region of production shows the combinations of factors at a certain cost that make economic sense. Areas outside the economic region of production mean that at least one of the inputs has negative marginal productivity. This region is marked by what are called ridg...