Production function/Tutorials
The learning curve[1]
On a P per cent learning curve, every time the length of the production run is doubled, the unit cost is reduced by a factor p.
(p being the percentage P expressed as a fraction)
The cost, Cn of the nth unit is given by:
- Cn= C1.n-b
where
- b = (-logp)(log2)
The Cobb-Douglas production function
The Cobb-Douglas function has the form:
- Y = A. Lα . Cβ,
where
- Y = output, C = capital input, L = labour input,
- and A, α and β are constants determined by the technology employed.
If α = β = 1, the function represents constant returns to scale,
If α + β < 1, it represents diminishing returns to scale, and,
If α + β > 1, it represents increasing returns to scale.
It can be shown that, in a perfectly competitive economy, α is labour's share of the value of output, and β is capital's share.
Dissenting voices
Supply
Piero Saffra objected to the law of supply and demand on the grounds that, by bidding up the prices of inputs to suppliers of substitutes, the increased output of a product expansion could increase the demand for that product, thus violatimg the necessary condition that demand must be independent of supply [1]. Jacob Viner had justified the long-run diminishing returns thesis by arguing that competitors for the required inputs would bid up their prices [2], but Lionel Robbins argued that Viner's justification was incomplete in cases where the market did not contain other users of an input and raised a number of other more complex objections [3].
Production
References
- ↑ Piero Sraffa: "The Laws of Return Under Competitive Conditions", The Economic Journal December 1926
- ↑ Jacob Viner: "Cost Curves and Supply Curves", in Readings In Price Theory, edited by G. J. Stigler and K. E. Boulding. Irwin, 1952.
- ↑ Lionel Robbins: "Remarks Upon Certain Aspects of The Theory of Costs", Economic Journal March 1934.