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Where capital is relatively scarce and therefore relative more expensive in use as compared to labor, a labor intensive production process may be moreĮfficient. Figure 2, Production IsoquantsĬ'' represent combinations of capital and labor used in a 1:4 ratio or Labor Intensive Production.įor a given production technology it is not possible to say that using one factor more intensively than the other is better or more efficient. 'K/L Ratio' button in the diagram above). In relative terms, this is known as Capital Intensive Production ( press the Inputs that allow for a given level of output: X = 100,Ī'' represent combinations of capital and labor used in a 4:1 ratio in order to Each point on a given colored line represents combinations of the two The 'kinked' lines in the above diagram are known as Production Isoquants The original quantity of intputs might allow for a tripling of output. Represent capital and labor combinations that allow for this greater level of output. If the production technology allows, we could double the quantity of each input and perhapsĭouble the amount of output. The lines connectingĮach point denote the possibility that an arithmetic average of any of these combinations may alsoĪllow for the production of 100 units of output. Suppose, for example, it is possible to produce 100 units of output (X = 100) with the following combinationsĮach point represents these input combinations. Inputs required to produce chosen levels of output. This allows for a two-dimensional representation of combinations of factor Entrepreneurship is embedded in the production With combinations of labor and capital input. Where we assume that the extraction of raw materials or the development of land is accomplished Vary in quantity, proportional increases in all factors of production may lead to unbounded increases in output.Īs we begin to model production in the long run, we will simplify the production function somewhat as: X = f(L, K), In addition, where all factors of production are allowed to Increasing amounts of labor (greater care being taken in production to avoid waste)Ĭan reduce the need for some material inputs ' M'. The amount of capital or machinery ' K' can replace some labor ' L' but not all of the labor We find that one factor may be substituted, to some degree, for another factor of production. Given the production function: X = f(L, K, M, R), Production in the long run is distinguished from short run production in that all factor inputs mayīe used in varying amounts.
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