UCI Effect of Technological Improvement Discussion

Question Description

I’m working on a economics question and need an explanation and answer to help me learn.

Refer to Ch. 6, Fig. 6.2 (The Effect of Technological Improvement) and Example 6.2 (Malthus and the Food Crisis)Malthus believed that the world’s limited amount of land would not be able to supply enough food as the population grew. As a result there would be mass hunger and starvation. But Malthus was proved wrong! Explain why Malthus’ prediction about mass hunger and starvation did not come to pass.

1 attachmentsSlide 1 of 1attachment_1attachment_1.slider-slide > img { width: 100%; display: block; }
.slider-slide > img:focus { margin: auto; }

Unformatted Attachment Preview

PRODUCTION, CH. 6
We’ll be covering all the sections of this chapter.
? In the earlier chapters, we focused on
the demand side of the market – the
preferences and behavior of consumers.
? Now we turn to the supply side and
examine the behavior of producers.
Theory of the
firm
? We will see how firms can produce
efficiently and how their costs of
production change with changes in
both input prices and the level of
output.
? The theory of the firm is an explanation
of how a firm makes cost-minimizing
production decisions and how its cost
varies with its output.
? Factors of Production: Inputs into the production
process (for example: labor, capital and
materials).
? Technology of Production: The processes a firm
uses to turn inputs into outputs of goods and
services.
Definitions
? Short Run: The period of time during which at least
one of a firm’s inputs is fixed. For example, the
duration when a firm’s size of its physical plant
(factory, store or office) cannot be changed is the
firm’s short run time period. The actual length of
time in the short run will be different from firm to
firm.
? Long Run: The period of time in which a firm can
vary all its inputs
? Production Function: The relationship between the
inputs employed by a firm and the maximum
output it can produce with those inputs. The
production function can be written as follows:
?? = ??(??, ??)
Production
Function in
the Short-Run
Let’s look at the
production function
of a pizza restaurant
in the short-run. The
restaurant uses labor
and capital (pizza
ovens) to produce
pizzas. The number of
ovens is fixed in the
short-run, and the
number of workers
can be varied.
Average and Marginal Products
? Average product is output per unit of
an input.
? Average product of labor is the output
produced per unit of labor input.
? AP of labor = q/L
? Marginal Product is the additional
output produced as an input is
increased by one unit.
? Marginal product of labor is the
additional output produced as the
labor input is increased by one unit.
? MP of labor = ?q/?L
? Law of Diminishing Returns: At some
point, adding more of a variable input
to the same amount of fixed input, will
cause the marginal product of the
variable input to decline.
Product Curves
? The total product or output increases as
more labor is hired, reaches the
maximum and then falls. (Top graph)
? The marginal product of labor at a point
is given by the slope of the total product
curve at that point.
? The marginal product increases and
then decreases, it is positive as long as
output is increasing but becomes
negative when output is decreasing.
(Bottom graph)
? The average product of labor is given by
the slope of the line drawn from the
origin to the corresponding point on the
total product curve. It increases and
then decreases. (Bottom graph)
Production Function
in the Long-Run
? Let’s turn to production function in the
long-run, when both labor and capital
are variable.
? The firm can now produce its output in
a variety of ways by combining
different amounts of labor and capital.
? Production with two variable inputs
can be graphically represented by
using isoquants.
? An isoquant is a curve that shows all
the combinations of two inputs that will
produce the same level of output. An
isoquant map shows several isoquants
in a single graph.
Substitution Among
Inputs
? Isoquants show the flexibility that firms have when
making production decisions.
? With two inputs that can be varied, a firm can substitute
one input for another. The slope of an isoquant is given
by ?K/ ?L. It shows the degree of substitutability between
the two inputs, for maintaining the same level of output.
? Marginal rate of technical substitution of labor for
capital, MRTSL.K is the amount by which capital can be
reduced when an extra unit of labor is used, so that the
output remains constant.
? MRTSL.K = – ?K/ ?L
? Diminishing MRTSL.K : MRTSL.K falls as we down the
isoquant. This implies that the isoquant is convex or
bowed inward.
Production With
Perfect Substitutes
? When inputs are perfect substitutes for
one another, then the isoquants are
straight lines.
? The MRTS is constant at all points on an
isoquant.
Production With
Perfect Complements
? When inputs are perfect
complements, then the production
function has L-shaped isoquants.
? This means that each level of output
requires a specific combination of
labor and capital.
? To increase output, both the inputs
must be increased proportionally.
? Such a production function is called
the fixed-proportions or Leontief
production function.
Returns To Scale
? If a firm expands the scale of
operation by increasing all the inputs
proportionately, then the change in
the output shows the returns to scale.
? If the output increases by the same
proportion, then there are constant
returns to scale (Top graph).
? If the output increases by a lower
proportion, then there are decreasing
returns to scale (Middle graph).
? If the output increases by a higher
proportion, then there are increasing
returns to scale (Bottom graph).
APPENDIX
EXAMPLE 6.1
A PRODUCTION FUNCTION FOR HEALTH CARE
Do increases in health care expenditures
reflect increases in output or do they reflect
inefficiencies in the production process?
The United States is relatively wealthy, and it
is natural for consumer preferences to shift
toward more health care as incomes grow.
However, it may be that the production of
health care in the United States is
inefficient.
A PRODUCTION FUNCTION FOR
HEALTH CARE, Figure 6.3
Additional expenditures on health care
(inputs) increase life expectancy
(output) along the production frontier.
Points A, B, and C represent points at
which inputs are efficiently utilized,
although there are diminishing returns
when moving from B to C.
Point D is a point of input inefficiency.
EXAMPLE 6.2
MALTHUS AND THE FOOD CRISIS
The law of diminishing marginal returns
was central to the thinking of political
economist Thomas Malthus (1766–
1834).
Malthus predicted that as both the
marginal and average productivity of
labor fell and there were more mouths
to feed, mass hunger and starvation
would result.
Malthus was wrong (although he was
right about the diminishing marginal
returns to labor).
Over the past century, technological
improvements have dramatically
altered food production in most
countries (including developing
countries, such as India). As a result,
the average product of labor and
total food output have increased.
Hunger remains a severe problem in
some areas, in part because of the low
productivity of labor there.
TABLE 6.2
INDEX OF WORLD FOOD
PRODUCTION PER CAPITA
YEAR
INDEX
1948-52
100
1961
115
1965
119
1970
124
1975
125
1980
127
1985
134
1990
135
1995
135
2000
144
2005
151
2009
155
EXAMPLE 6.2
MALTHUS AND THE FOOD CRISIS
Figure 6.4
CEREAL YIELDS AND THE WORLD PRICE OF FOOD
Cereal yields have increased. The average world price of food
increased temporarily in the early 1970s but has declined since.
EXAMPLE 6.4
A PRODUCTION FUNCTION FOR WHEAT
Food grown on large farms in the United States is
usually produced with a capital-intensive
technology. However, food can also be produced
using very little capital (a hoe) and a lot of labor
(several people with the patience and stamina to
work the soil).
Most farms in the United States and Canada,
where labor is relatively expensive, operate in the
range of production in which the MRTS is relatively
high (with a high capital-to-labor ratio), whereas farms in developing
countries, in which labor is cheap, operate with a lower MRTS (and a lower
capital-to-labor ratio).
The exact labor/capital combination to use depends on input prices, a
subject that we discuss in Chapter 7.
EXAMPLE 6.4
A PRODUCTION FUNCTION FOR WHEAT
Figure 6.9
ISOQUANT DESCRIBING THE
PRODUCTION OF WHEAT
A wheat output of 13,800
bushels per year can be
produced with different
combinations of labor and
capital.
The more capital-intensive
production process is shown
as point A,
the more labor- intensive
process as point B.
The marginal rate of technical
substitution between A and B
is 10/260 = 0.04.
EXAMPLE 6.5
RETURNS TO SCALE IN THE CARPET INDUSTRY
Innovations have reduced costs and greatly increased
carpet production. Innovation along with competition
have worked together to reduce real carpet prices.
Carpet production is capital intensive. Over time, the
major carpet manufacturers have increased the scale
of their operations by putting larger and more efficient
tufting machines into larger plants. At the same time,
the use of labor in these plants has also increased
significantly. The result? Proportional increases in
inputs have resulted in a more than proportional
increase in output for these larger plants. However,
there are constant returns to scale for the smaller plants.
TABLE 6.5
THE U.S. CARPET INDUSTRY
CARPET SALES, 2005 (MILLIONS OF DOLLARS PER
YEAR)
1.
Shaw
4346
2.
Mohawk
3779
3.
Beaulieu
1115
4.
Interface
421
5.
Royalty
298

Purchase answer to see full
attachment

Explanation & Answer:
50 Words

Tags:
Effect of Technological Improvement

Student has agreed that all tutoring, explanations, and answers provided by the tutor will be used to help in the learning process and in accordance with Studypool’s honor code & terms of service.