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Lecture 1
INTRODUCTION
1. MACROECONOMICS
– deals with big picture or issues
confronting the entire economy, e.g.
inflation, employment, taxation, etc.
2. MICROECONOMICS
– concerned with the behavior of individual
decision making units.
N. DM. Carambas, DAAE-UPLB, 2017
ECONOMICS AND ITS
BRANCHES
2.1 CONSUMPTION ECONOMICS
– concerned with the behavior of individual consumer as
income is allocated among consumption goods in
order to maximize satisfaction
Overall Objectives
1. to help farmers and farm people
attain their stated objectives
2. to facilitate the most efficient use of
agricultural resources from the
standpoint of the consuming
economy
Lecture 2
𝒚=𝒇 𝒙
where:
y = output
x = vector of inputs
3) Cobb-Douglas:
y = Ax1b1x2b2
4) Transcendental:
y = Ax1a1x2a2eb1x1 + b2x2
5) Constant Elasticity of Substitution (CES):
y = A[bx1-g + (1-b)x2-g]-b/g
6) Transcendental Logarithm or Translog:
lny = lnA + b1lnx1 + b2lnx2 + 0.5(b11lnx12 + b12lnx1lnx2 +
b22lnx22)
N. DM. Carambas, DAAE-UPLB, 2017
Production Function
Graphical Presentation:
Neoclassical Production Function
Example: R = 5N0.2L0.5F0.3
N. DM. Carambas, DAAE-UPLB, 2017
PRODUCTION QUANTITIES Contd.
APPx1 TPPx1 / x1 y / x1
o
f
Extensive Margin
Intensive Margin
P
r L|N,F
o
d
u
c
t
i
o
n
P
INTENSIVE MARGIN – the point of zero MPP
r
o
of the variable input; land is cultivated
d
intensively.
u
c
EXTENSIVE MARGIN – the point of maximum
t
i
APP of the variable input; the cultivation of
o
land is extensive.
n
Proof:
y
y x or TPP APP x`
x
dy y d ( y / x)
x or MPP APP slope of APP x
dx x dx
N. DM. Carambas, DAAE-UPLB, 2017
Law of Diminishing Marginal Returns
y
%y y y x dy x 1 MPP
y,x MPP
%x x x y dx y APP APP
x
Example:
MPP
y, x
APP
εy,x = 1
εy,x = 0
= TR – TC
SOC:
𝒅𝟐 𝑻𝑽𝑷 𝒅𝑻𝑭𝑪
𝟐 − <𝟎
𝒅𝒙 𝒅𝒙
𝒅𝟐 𝑻𝑽𝑷 𝒅𝟐 𝑻𝑭𝑪
< ↔ 𝑴𝑽𝑷′ < 𝑴𝑭𝑪′
𝒅𝒙𝟐 𝒅𝒙𝟐
─ taken alone, it does not ensure that profits will be maximum, only
that profit could be maximum.
THE TWO taken together will ensure that the event will always occur
and that no other set of conditions will result in the occurrence of
the event.
Breakeven
TVP = TFC
Maximum
(MVP = MFC)
Maximum loss
(MVP = MFC)
0
L*
Breakeven
Maximum Loss
Maximum
MVP
AVP
MFC
AFC 𝑴𝑭𝑪 = 𝑷𝑿 = 𝑨𝑭𝑪
AVP
SP = VMP/MFC
11 < 0
e.g., 11 12 13
H 21 22 23
31 32 33
11 12 13
11 12
H1 11 0 H2 0 H 3 21 22 23 0
21 22
31 32 33
N. DM. Carambas, DAAE-UPLB, 2017
UNCONSTRAINED PROFIT MAXIMIZATION
WITH RESPECT TO INPUT
Sample Computation
Given: y = 2x11/2x21/3, p = 15, v1 = 10, v2 = 5,
SOCs: