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Economia y Empresa ETSIT Guion Alumnos

Economia y Empresa ETSIT Guion Alumnos

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Published by: she_yazz on Feb 12, 2012
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06/14/2013

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The purpose of a firm is to turn inputs into outputs. An abstract model of production is
the production function, a mathematical relationship between inputs and outputs.
Engineers tell us about technology… Letting q represent the output during a period, K
represent capital use, L represent labor input, and M represent raw materials, the
following equation represents a production function q=F(K,L,M)

Axiomatic approach: Set of technological constraints On production, Combine inputs
into outputs. Let us ask engineers about reasonable assumptions

1. No free lunch: Production process Need inputs To produce outputs
2. Nonreversibility: Cannot run a production process in reverse
3. Free disposability: Combination of inputs Certain output Or strictly less output
4. Additivity: Produce output x, One combination of inputs. Produce output y, Another
combination of inputs. Then it is feasible: produce x+y
5. Divisibility: Feasible input combination y, Then, λy – feasible input combination 0≤ λ ≤

1

6. Convexity: Production activity: y, Output: z, Particular amounts of inputs. Production
activity: w, Output: z, Different amounts of inputs. Then Produce: at least z Mix
activities y (λ time) and w(1- λ time)

An important question is how firms choose their levels of output and inputs. Engineers
cannot tell anything about it, as this is not an engineering problem but an economic
one.

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