Production Theory and Estimation

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Production Theory and Estimation the Firm and
its Technology, Ch 6 Plus ideas we need
from Ch 7, Optimal Input Combinations and Cost
Functions. Mansfield and Yohe
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The long run and returns to scale 1. increasing
returns 2. constant returns 3. decreasing returns
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This slope is called the "Marginal Rate of
Technical Substitution"
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Optimal utilization of an input MRPY MEY

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The Optimal Combination of Inputs MPa/(Pa)
MPb/(Pb) MPn/(Pn) This is demonstrated
by LaGrangean method.
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Issues regarding the estimation of production
functions and the practical applications of the
estimates--these follow.
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Apple production process data set. Also let
input prices be 250, 133, 450, 200, and 100.
Means at bottom.
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Summary log regression output for Apple firm
data.
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What do people do with such results? It is a
warning bell If marginal products per dollar
aren't approximately equal across inputs, then
you have a big problem.
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"Quick way" refers to the fact that you don't
need to recalculate the entire expression each
time. Find Q evaluated at mean input levels.
Then, MP1 ?1 Q/K1.
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Here Labor and Equipment give the best
performance on the margin, while Other Resources
and Land are relatively useless in this project
on the margin.