The Specific Factors Model The production function for manufactures is given by OM=OM(K, LM) (3-1) where OM is the economy's output of manufactures K is the economy 's capital stock LMis the labor force employed in manufactures The production function for food is given by OF-OF(T 3-2 where Q F IS the economy s out tput of food Tis the economy's supply of land LF is the labor force employed in food Copyright C 2003 Pearson Education, Inc Slide 3-6
Copyright © 2003 Pearson Education, Inc. Slide 3-6 • The production function for manufactures is given by QM = QM (K, LM) (3-1) where: – QM is the economy’s output of manufactures – K is the economy’s capital stock – LM is the labor force employed in manufactures • The production function for food is given by QF = QF (T, LF ) (3-2) where: – QF is the economy’s output of food – T is the economy’s supply of land – LF is the labor force employed in food The Specific Factors Model
The Specific Factors Model The full employment of labor condition requires that the economy-wide supply of labor must equal the labor employed in food plus the labor employed in manufactures t Le We can use these equations and derive the production possibilities frontier of the economy Copyright C 2003 Pearson Education, Inc Slide 3-7
Copyright © 2003 Pearson Education, Inc. Slide 3-7 • The full employment of labor condition requires that the economy-wide supply of labor must equal the labor employed in food plus the labor employed in manufactures: LM + LF = L (3-3) • We can use these equations and derive the production possibilities frontier of the economy. The Specific Factors Model
The Specific Factors Model Production possibilities To analyze the economy's production possibilities, we need only to ask how the economy's mix of output changes as labor is shifted from one sector to the other Figure 3-1 illustrates the production function for manufactures Copyright C 2003 Pearson Education, Inc Slide 3-8
Copyright © 2003 Pearson Education, Inc. Slide 3-8 ▪ Production Possibilities • To analyze the economy’s production possibilities, we need only to ask how the economy’s mix of output changes as labor is shifted from one sector to the other. • Figure 3-1 illustrates the production function for manufactures. The Specific Factors Model
The Specific Factors Model Figure 3-1: The Production Function for Manufactures Output, QM QM=QM( K, Lm) Labor input, LM Copyright C 2003 Pearson Education, Inc Slide 3-9
Copyright © 2003 Pearson Education, Inc. Slide 3-9 QM = QM (K, LM) Figure 3-1: The Production Function for Manufactures The Specific Factors Model Labor input, LM Output, QM
The Specific Factors Model The shape of the production function reflects the law of diminishing marginal returns Adding one worker to the production process(without increasing the amount of capital) means that each worker has less capital to work with Therefore. each additional unit of labor will add less to the production of output than the last Figure 3-2 shows the marginal product of labor, which is the increase in output that corresponds to an extra unit of labor Copyright C 2003 Pearson Education, Inc Slide 3-10
Copyright © 2003 Pearson Education, Inc. Slide 3-10 • The shape of the production function reflects the law of diminishing marginal returns. – Adding one worker to the production process (without increasing the amount of capital) means that each worker has less capital to work with. – Therefore, each additional unit of labor will add less to the production of output than the last. • Figure 3-2 shows the marginal product of labor, which is the increase in output that corresponds to an extra unit of labor. The Specific Factors Model