Production Economics

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PRODUCTION ECONOMICS Spiro E. Stefanou Pennsylvania State University Bruce R. Beattie and C. Robert Taylor, The Economics of Production, reprinted by Krieger Publishing Company; ISBN: 089464534X; reprint edition (January 1993) C.A. Knox Lovell, “Production Frontier and Productive Efficiency,” Chapter 1 in The Measurement of Productive Efficiency: Techniques and Applications, edited by Harold O. Fried, C.A. Knox Lovell, Shelton Schmidt, Oxford University Press, 1993. Spiro E. Stefanou, The Microeconomics of Dynamic Decisions, unpublished lecture notes. Other materials to be handed out. COURSE OUTLINE Theory of Production I. Technical Aspects of Production: The Production Functions a. One-Product, One variable factor relationships b. One Product, two variable factor relationships (then to the s-variable factor case) c. Notes on functional forms and empirical studies II. Economic Aspects of Production: Factor Costs and Profit a. The Input Perspective One product, two variable factors Least cost combinations, constrained output maximization, profit maximization factor demand fuctions, economic interdependence of factors, comparative statics of the cost minimization model, and economic regions of production One product, s-variable factors Functional Forms b. The Output Perspective Cost Functions Revenue Functions Profit Maximization Product Supply Function Long-run and Short-run Cost Curves III. Multiple Output Production: a. Two Product, one allocable factor b. Multiproduct production with n-allocatable factors c. Relationship to Cost and Profit Functions Statistical and Measurement Issues IV. Econometric Specification and Estimation a. Primal function estimation: estimation production functions b. Dual Function estimation: cost and profit functions as system c. Errors in optimization versus errors in measurement V. Firm Performance: Efficiency and Productivity a. Defining and measuring technical and Allocative inefficiency b. Productivity growth and technical change. Dynamic Theory of the Firm VI. Theory of the Long Run and Dynamic Decision making a. Defining the dynamic production problem b. Microeconomics of dynamic decisions making. .

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