__________________________

Agricultural Production Economics

The Art of Production Theory

David L. Debertin
___________________________________
 Agricultural Production Economics
The Art of Production Theory

Agricultural Production Economics (The Art of Production Theory) is a companion book of color illustrations
to Agricultural Production Economics (Second Edition, Amazon Createspace 2012) and is a free download. A
bound print copy is also available on amazon.com at a nominal cost under the following ISBN numbers:

ISBN- 13: 978-1470129262

ISBN- 10: 1470129264

This is a book of full-color illustrations intended for use as a companion to Agricultural Production Economics, Second
Edition. Each of the 98 pages of illustrations is a large, full-color version of the corresponding numbered figure in the
book Agricultural Production Economics. The illustrations are each a labor of love by the author representing a
combination of science and art. They combine modern computer graphics technologies with the authors skills as both as a
production economist and as a graphics artist. Technologies used in making the illustrations trace the evolution of
computer graphics over the past 30 years. Many of the hand-drawn illustrations were initially drawn using the Draw
Partner routines from Harvard Graphics. Wire-grid 3-D illustrations were created using SAS Graph. Some illustrations
combine hand-drawn lines using Draw Partner and the draw features of Microsoft PowerPoint with computer-generated
graphics from SAS. As a companion text to Agricultural Production Economics, Second Edition, these color figures
display the full vibrancy of the modern production theory of economics.

This is one of three agricultural economics textbooks by David L. Debertin. Agricultural Production Economics (Second
Edition, Amazon Createspace 2012) is a revised edition of the Textbook Agricultural Production Economics published by
Macmillan in 1986 (ISBN 0-02-328060-3). and a free pdf download of the entire book. As the author, I own the
copyright. Amazon markets bound print copies of the book at amazon.com at a nominal price for classroom use. Bound
paper copies of the book can also be ordered through college bookstores using the following ISBN numbers:

ISBN-13 978-1469960647 or
ISBN-10 1469960648

The third book is aimed at upper-division undergraduate students of microeconomics in agricultural economics and
economics. It is a 242-page book titled Applied Microeconomics (Consumption, Production and Markets) and is a free
download. Bound print copies are also available at amazon.com and through college bookstores at a nominal cost under
the following ISBN numbers:

ISBN13: 9781475244342
ISBN-10: 1475244347

This book Applied Microeconomics is much newer than Agricultural Production Economics, having been completed in
2012. As the author, I would suggest downloading and studying this Applied Microeconomics book before diving into
Agricultural Production Economics. This book uses spreadsheets to calculate numbers and draw graphs. Many of the
examples and numbers are the same ones used in Agricultural Production Economics, so the two books are tied to each
other.
If you have difficulty accessing or downloading any of these books, or have other questions, contact me at
the email address, below.

David L. Debertin
Professor Emeritus
University of Kentucky
Department of Agricultural Economics
Lexington, Kentucky, 40515-0276
ddeberti@uky.edu
 David L. Debertin is Professor Emeritus of Agricultural Economics at the University of Kentucky,
Lexington, Kentucky and has been on the University of Kentucky Agricultural Economics faculty since 1974
with a specialization in agricultural production and community resource economics. He received a B.S. and an
M.S. degree from North Dakota State University, and completed a Ph.D. in Agricultural Economics at Purdue
University in 1973. He has taught the introductory graduate-level course in agricultural production economics
in each year he has been at the University of Kentucky. The first edition of Agricultural Production economics
was published in hardback by Macmillan in 1986. He began work on the second edition of the book after the
Macmillan edition went out of print in 1992, taking advantage of emerging two-and three-dimensional
computer graphics technologies by linking these to the calculus of the modern theory of production economics.
This is a book of full-color illustrations intended for use as a companion to Agricultural Production Economics,
Second Edition. Each of the 98 pages of illustrations is a large, full-color version of the corresponding
numbered figure in the book Agricultural Production Economics.
Agricultural Production Economics

THE ART OF PRODUCTION THEORY

DAVID L. DEBERTIN
University of Kentucky

This is a book of full-color illustrations intended for use as a

companion to 428-page Agricultural Production Economics,
Second Edition. Each of the 98 pages of illustrations is a large,
full-color version of the corresponding numbered figure in the
b k Agricultural
book A i lt l Production
P d ti Economics,
E i Second
S d Edition.
Editi TheTh
illustrations are each a labor of love by the author representing a
combination of science and art. They combine modern computer
graphics technologies with the authors skills as both as a
production economist and as a technical graphics artist.

Technologies
T h l i usedd in i making
ki th the illustrations
ill t ti trace
t the
th evolution
l ti
of computer graphics over the past 30 years. Many of the hand-
drawn illustrations were initially drawn using the Draw Partner
routines from Harvard Graphics. Wire-grid 3-D illustrations
were created using SAS Graph. Some illustrations combine
hand-drawn lines using Draw Partner and the draw features of
Mi
Microsoft
f PowerPoint
P P i withi h computer-generated d graphics
hi from
f
SAS. As a companion text to Agricultural Production
Economics, Second Edition, these color figures display the full
vibrancy of the modern production theory of economics.
 2012 David L.
L Debertin
Second Printing, December, 2012

David L. Debertin
University of Kentucky,
Department of Agricultural Economics
400 C.E.B. Bldg.
Lexington KY 40546
Lexington, 40546-0276
0276

All rights reserved. No part of this book may be reproduced

or transmitted in any form or by any means, without permission
from the author.

Debertin, David L.
Agricultural Production Economics
The Art of Production Theory

1. Agricultural production economics

2. AgricultureEconomic aspectsEconometric models

ISBN- 13: 978-1470129262 2

ISBN 10: 1470129264
ISBN-

BISAC: Business and Economics/Economics/Microeconomics

 Price
Supply

p1
Demand
(New Income)
p2

Demand
(Old Income)

q1 q2 Quantity

Figure 1.1 Supply and Demand

y y =x 2
y y = 2x y 0.5
y=x

x x x
A B C

Figure 2.1 Three Production Functions

1
y
C

y = f(x)

D
y

A x

Figure 2.2 Approximate and Exact MPP

2
 y
or
TPP Slope
Equals
Eq als
Zero
Slope Equals
MPP Equals Maximum
Maximum TPP
APP Maximum
APP
TPP
y = f(x1)

Slope
Equals
APP Inflection
Point

x o1 x 1*

Maximum x1
MPP MPP
A Maximum
or APP
APP B

APP
0 MPP

x1
MPP

Figure 2.3 A Neoclassical Production Function

3
 y = 136.96
140

TPP
TPP Maximum
120

100
TPP
y = 85.98
80
APP Maximum
y = 56.03
60
MPP Maximum
Inflection Point
40

20

60.87 91.30 181.60

0
0 50 100 150 200 x
1.2
1.1 1.01 0.94 MPP = APP
1
MPP 0.9

APP 0.8
0.7 APP
0.6
0.5
0.4
0.3
0.2
0.1
0 MPP
0
-0.1
-0.2
MPP
-0.3

0 50 100 150 200 x

Figure 2.4 TPP, MPP and APP for Corn (y) Response to
Nitrogen (x) Based on Table 2.5 Data

4
 + MPP + + MPP + (d) f1 > 0
(a) (b) MPP (c)
MPP f1 > 0 MPP f1 > 0 MPP f1 > 0 MPP f2 = 0
f2 > 0 f2 > 0 f2 > 0 MPP
f3 > 0 f3 = 0 f3 < 0
0 0 0 0

- - - -
+ (e) f1 > 0 + + (g) f1 > 0
(f) f1 > 0
MPP
f2 < 0 f2 < 0 f2 < 0
f3 > 0 MPP f3 < 0
f3 = 0 MPP
MPP MPP MPP
0 0 0

- - -
+ + + +
(h) f1 < 0 (i) f1 < 0 (j) f1 < 0 (k)
MPP f2 < 0 MPP f2 < 0 MPP f2 < 0 MPP f1 < 0
f3 < 0 f3 = 0 f3 > 0 f2 = 0

0 0 0 0
MPP
- MPP - MPP - MPP -
+ (l) + +
f1 < 0 (m) f1 < 0 (n) f1 < 0
MPP f2 > 0 MPP f2 > 0 MPP f2 > 0
f3 > 0 f3 = 0 f3 < 0
0 0 0
MPP MPP MPP
- - -

Figure 2.5 MPPs for the Production Function y = f(x)

5
 y,
MPP Ep > 1 Ep > 1 0 < Ep < 1 Ep < 0
or
APP
B

E p =1
APP

0 C
x

MPP
-

Figure 2.6 MPP, APP and the Elasticity of Production

6
 TVP
$
py
or TVP
pTPP

Inflection
Point

x
$
VMP =
pMPP
AVP =
pAPP
MFC MFC
AVP

0
x
VMP

Figure 3.1 The Relationship Between TVP, VMP, AVP, and MFC
7
 TFC Zero
Zero
$ Slope
Profit
TVP Maximum
TFC Profit TVP
Parallel Maximum
TVP
Maximum
AVP

Zero
Profit

Maximum
VMP

Parallel Inflection
P i t
Point

Minimum
Profit Maximum
Profit

x* x
VMP
Maximum
AVP VMP
MFC Minimum VMP =
$ Profit MFC
VMP =
MFC MFC = v o
vo
AVP =
p o APP
0
x
Zero
Maximum VMP
Profit VMP
Profit
$

0
Zero x*
Zero x
Profit Profit
Minimum
Profit Profit

Figure 3.2 TVP, TFC, VMP, MFC and Profit

8
600
$ 547.69 547.86

500
520.79 520.62

TVP
400

Profit
300

200

100

179.322 181.595
TFC
0
0 40 80 120 160 200 240
x
600
$ 546.28 547.86

500
467.69 466.14

400
TVP

300
Profit
200

100 TFC

174 642
174.642 181 595
181.595
0
0 40 80 120 160 200 240
x
Figure 3.3 TVP, TFC and Profit (Top and Second Panel)

9
 600
541.26 547.86
$
500

390.75 384.42
400

300

200

100
167.236 181.595

0
0 40 80 120 160 200 240
x
Figure 3.3 TVP, TFC and Profit (Third Panel)
4.02
3.77
4
$3.5
3
2.5
2 AVP
1.5
1 MFC 0.90
MFC 0.45
0.5
MFC 0.15
0
-0.5
-1 VMP
-1.5
0 40 80 120 160 200 181.595 240
60.870 91.304 167.236
174.642
179.322
x
Figure 3.3 Profit Maximization under Varying
Assumptions with Respect to Input Prices (Bottom Panel)
10
 y

TPP

Stage I Stage II Stage III

A B C
x
y

APP
0
x

MPP

Figure 3.4 Stages of Production and the Neoclassical Production Function

11
$

D C MFC
E Loss
B
Cost
Revenue Per AVP
Per Unit
Unit

0
A x* x
VMP
Figure 3.5 If VMP is Greater than AVP, the Farmer Will Not Operate

VMP
MFC

MFC

0
x

VMP
Figure 3.6 The Relationship Between VMP and MFC Illustrating the
12 Imputed Value of an Input
$

SRAC5
SRMC1 SRMC5 LRAC
SRAC2
SRAC1 SRAC4
SRMC2 SRAC3
SRMC3 SRMC4

Figure
g 4.1 Short and Longg Run Average
g and Marginal
g Cost
with Envelope Long Run Average Cost

13
 TC
VC or
TVC
$
Minimum
slope of
TC

Inflection Minimum
Point slope of
TVC

FC

y
AC*

$
MC
AVC*
AC
B
AVC

AFC*
FC = k
AFC
y
Figure 4.2 Cost Functions on the Output Side
14
 +
AFC AC
$ AC

AVC AFC

AVC AFC

MC
Stage II Stage III

AFC AFC
AFC
0
y* y

MC
-

-
Figure 4.3 Behavior of Cost Curves as Output
Approaches a Technical Maximum y*
15
 TC TR

$ TVC

Parallel
p

Parallel

FC

y
$
MC

MR = p
AC
AVC

AFC
y
Maximum Profit
$
+ Zero
Profit Profit

0 y

-
Minimum Profit

Figure 4.4 Cost Functions and Profit Functions

16
600
TR
$
500
TC

400 VC

300

200 Maximum Profit

Profit
100 FC

0
Zero Profit
y = ~ 115

-100 y
0 20 40 60 80 100 120 140

$ MC
6

4 MR
AC
3 AVC

1
AFC

0 y
0 20 40 60 80 100 120 140

Figure 4.5 The Profit-Maximizing Output Level

Based on Data Contained in Table 4.1
17
 Maximum o
TPP 45
Y Maximum Y
APP

TPP

Maximum
MPP
(Inflection
Point)

X Y
$ TC = vx $ TVC

Minimum
AVC

Minimum
MC
V v = price of x (Inflection
Point)
X

X Y

Figure 4.6 A Cost Function as an Inverse Production Function

18
 MC = Supply

$
AVC

p3

p2

p1

Figure 4.7 Aggregate Supply When the Ratio MC/AC = 1/b

and b is less than 1

19
 134
Corn Yield 136
Y 130
136 127

121
120
114
104
106

88 80 101 80
60 60
40 96 40
20 X1
X 2 20
0 0

Figure 5.1 Production Response Surface Based

on Data Contained in Table 5.1
105 115 125
96 100 1101 120 129 134 134
80
X2
70
129
60

50 125

120
40

30
115
20
110
10 105

0
0 10 20 30 40 50 60 70 X 80
Potash 1

Figure 5.2 Isoquants for the Production Surface in

Figure 5.1 Based on Data Contained in Table 5.1
20
x2

x2

x1

x2

x1 x
2

x1

y 0

x1

Figure 55.3
3 Illustration of Diminishing MRS x1x2

21
 Figure 5.4 Isoquants and a Production Surface (Panel A)

Figure 5.4 Isoquants and a Production Surface (Panel B)

22
Figure 5.4 Isoquants and a Production Surface (Panel C)

Figure 5.4 Isoquants and a Production Surface (Panel D)

23
 Figure 5.4 Isoquants and a Production Surface (Panel E)

250

167

83

0 20
20 18
18 16
16 14
14 12
12 10
10 8
8 6
X2 6 4
4 2
2 0
0 X1

Figure 5.4 Isoquants and a Production Surface (Panel F)

24
 X2 X1

Figure 5.5 Some Possible Production

Surfaces and Isoquant Map A .The Production Surface

5
X2

0
0 1 2 3 4 5
X1

Figure 5.5 Some Possible Production

Surfaces and Isoquant Map B. The Isoquant Map
25
 Y

10.00

6.67

3.33

0.00 10
10
8 8
6 6
4
X2 4 X1
2 2
0 0

Figure 5.5 Some Possible Production

Surfaces and Isoquant
q Mapp C . The Production Surface
10
X2

0
0 2 4 6 8 10
X1

Figure 5.5 Some Possible Production

26 Surfaces and Isoquant
q Mapp D . The Isoquants
q
 Y

10.0

6.67

3.33

0.00 10
10
8 8
6 6
4
X2 4
2 X1
2
0 0
Figure 5.5 Some Possible Production Surfaces and Isoquant Maps
E. The Production Surface

10
X2
8

0
0 2 4 6 8 10
X1
Figure 5.5 Some Possible Production Surfaces and Isoquant Maps
F. The Isoquants 27
 Y

10.00

6.83

3 67
3.67

0.50
10.0 10.0
8.1 8.1
6.2 6.2
4.3 4.3
24
2.4 X1
X2 2.4
0.5 0.5
Figure 5.5 Some Possible Production Surfaces and Isoquant Maps
K. The Production Surface

10.0
X2
8.1

6.2

4.3

2.4

0.5
05
0.5 24
2.4 43
4.3 62
6.2 81
8.1 10 0
10.0
X1

Figure 5.5 Some Possible Production Surfaces and Isoquant Maps

L. The Isoquants

28
 Y

10.00

6.67

3.33

0.00 10
10
8 8
6 6 X1
4
X2 4
2 2
0 0

Figure 5.5 Some Possible Production Surfaces and Isoquant Maps

G. The Production Surface

10
X2
8

0
0 2 4 6 8 10
X1

Figure 5.5 Some Possible Production Surfaces and Isoquant Maps

H. The Isoquants

29
 Y

0.181

0.040

-0.100

-0.241

10.0 10.0
8.1 8.1
6.2 6.2
4.3 4.3
X2 2.4 X1
2.4
0.5 0.5

Figure 5.5 Some Possible Production Surfaces and Isoquant Maps

I. The Production Surface

10.0
X2
8.1

6.2

4.3

2.4

0.5
05
0.5 24
2.4 43
4.3 62
6.2 81
8.1 10 0
10.0
X1

Figure 5.5 Some Possible Production Surfaces and Isoquant Maps

J. The Isoquants
30
 3.0

x2 Ridge Line
for x 1
2.4
x2 *

1.8
Ridge Line
for x2
x 2**
1.2

x 2***
0.6

0.0
x1
0.0 0.6 1.2 1.8 2.4 3.0

y = f (x 1 | x 2 *)

y = f (x 1 | x 2** )

y = f (x 1 | x***
2 )

x1
0.0 0.6 1.2 1.8 2.4 3.0

Figure 5.6 Ridge Lines and a Family of Production Functions

For Input x1 31
 Y Maximum

50.00

33.33

16.67

0.00 10
10
8
8
6
6
4
X2 4 X1
2
A. The Surface 2
0
0
Figure 6.1 Alternative Surfaces and Contours Illustrating
Second Order Conditions

10
X2

6
Maximum
4

0
0 2 4 6 8 10
X1
B. The Contour Lines
Figure 6.1 Alternative Surfaces and Contours Illustrating
32 Second Order Conditions
 Y

0.00

-16.67

-33.33

-50.00 10
10 Minimum
8 8
6
6
4
X2 4 X1
2
2
C. The Surface 0
0

Figure 6.1 Alternative Surfaces and Contours Illustrating

Second Order Conditions
10
X2

6
Minimum
4

0
0 2 4 6 8 10
X1
D. The Contour Lines
Figure 6.1 Alternative Surfaces and Contours Illustrating
Second Order Conditions
33
 Y

25.00

8.33 Saddle

-8.33
8 33

-25.00 10
10
8
8
6
6
4
X2 4 X1
2
2
E. The Surface 0
0

Figure 6.1 Alternative Surfaces and Contours Illustrating

Second Order Conditions
10
X2

6 Saddle

0
0 2 4 6 8 10
X1
F. The Contour Lines
Figure 6.1 Alternative Surfaces and Contours Illustrating
34 Second Order Conditions
 Y

25.00

8.33 Saddle

-8.33

-25.00 10
10
8
8
6
6
4
X2 4 X1
2
G. The Surface 2
0
0
Figure 6.1 Alternative Surfaces and Contours Illustrating
Second Order Conditions
10
X2

S
Saddle
6

0
0 2 4 6 8 10
H. The Contour Lines X1

Figure 6.1 Alternative Surfaces and Contours Illustrating

Second Order Conditions 35
 Y

220

47

Saddle
-127

-300 5
5
3
3
1
1
-1

X2 -1 X1
I . The Surface -3
-3

-5
-5
Figure 6.1 Alternative Surfaces and Contours Illustrating
Second Order Conditions
5
X2

1 Saddle

-1

-3

-5
-5 -3 -1 1 3 5
J. The Contour Lines X1

Figure 6.1 Alternative Surfaces and Contours Illustrating

36 Second Order Conditions
 Y

200

Saddle

27

-147

-320 5
5
3
3
1
1
-1
X2 -1 X1
-3
-3
K. The Surface -5
-5

Figure 6.1 Alternative Surfaces and Contours Illustrating

Second Order Conditions
5
X2

Saddle
1

-1

-3

-5
-5 -3 -1 1 3 5
X1
I. The Contour Lines

Figure 6.1 Alternative Surfaces and Contours Illustrating

Second Order Conditions 37
 Global Maximum

379

Saddle
Local Max Saddle Local Max
253

126

Local
0 Minimum Saddle
20 Saddle 20
16 16
Local Max
12 12
8 X1
X2 8
Surface 4 4
0 0

Figure 6.2 Critical Values for the Polynomial y = 40 x1 12 x12

+ 1.2 x13 0.035x14+ 40 x2 12 x22 + 1.2 x23 0.035x24

Contour Lines
Figure 6.2 Critical Values for the Polynomial y = 40 x1 12 x12
38 + 11.22 x13 0.035x
0 035x14 + 40 x2 12 x22 + 11.22 x23 0.035x
0 035x24
 3.0
o
X2 C /v2

24
2.4 Expansion
Path

1.8

1.2 v1
v2

0.6 o
C /v1

0.0
0.0 0.6 1.2 1.8 2.4 3.0
X1
Figure 7.1 Iso-outlay Lines and the Isoquant Map
Global Profit Maximum Global Output Maximum
(Pseudo Scale Lines Intersect) (Ridge Lines Intersect)
$

Constrained Output Maxima

(Bundle Allocated According to
Expansion Path Conditions)

Price of the Input

Bundle

The Input Bundle

X
Top Panel
VMP of
X

Figure 7.2 Global Output and Profit Maximization for the Bundle 39
 Global Output Maximum
((Ridge
g Lines Intersect))

250 Global Profit Maximum

(Pseudo Scale Lines Intersect)

Sample Isoquant
(Constrained Maximum
167
Below Global Output
or Profit Maximum)

83

0 20
20 18
18 16
16 14
14 12
12 10
10 8
8 6 X1
6 4
4 2
Bottom Panel 2 0
X2 0

Figure 7.2 Global Output and Profit Maximization for the Bundle

40
 20
X2

18

16

14
Point on
Pseudo Point on
12 Scale Ridge
Line Line
*
10 x2

0
0 2 4 6 8 10 12 14 16 18 20

X1
Output Maximum
$ Profit Maximum for x1 Holding
for x Holding x2 constant at x2*
1 *
x constant at x 2
2

py = f (x1 | x2* ) = TVP

MFC = v1

0 2 4 6 8 10 12 14 16 18 20

X1
VMP x | x2*
1

Figure 7.3 Deriving a Point on a Pseudo Scale Line

41
 20
X2
Global Global
18 Profit Output
Maximum Maximum

16

14

12

10 Isocost
Lines

4 X

X
2

0
0 2 4 6 8 10 12 14 16 18 20
X1

Figure 7.4 The Complete Factor-Factor Model

42
 Global Output Maximum

250 Global Profit Maximum

167 Constrained
Output Maximum

83

0
20 18 20
16 16 18
14 14
12 12
10 10
8 8
X2 6 6 X1
4 4
2 2
0 0

Figure 7.5 Constrained and Global Profit and Output Maxima

along the Expansion Path

43
Revenue,
Profit Global Revenue Maximization
$
Global Profit Maximization
250
Ridge Line 2
Ridge Line 1
Pseudo Scale Line 2
153 Pseudo Scale Line 1

57

0 0

-40
20 18 18 20
16 14 14 16
12 12
10 10
8 8
6 6 X1
X2 4 4
2 2
0 0

Total Revenue Surface Profit Surface

Figure 8.1 TVP- and Profit-Maximizing Surfaces

44
 20
X2
18
Global Output Max

16

14 Global Profit Max

12

10

0
0 2 4 6 8 10 12 14 16 18 20
X1
Isorevenue Lines Isoprofit Lines

Figure 8.2 Isorevenue and Isoproduct Contours

45
 x2
Solution

Isoquant

y'

Budget
Constraint

x1

Figure 8.3 A Corner Solution

46
Y
250

167

83

0 A B C 20
20 18
18 16
16 14
14 12
12 10
10 8
8 6 X1
X2 6 4
4 2
2 0
0

Figure 8.4 A. Point B Less than A and C

250

167

83
A B C

0 20
20 18
18 16
16 14
14 12
12 10
10 8
8 6 X1
6 4
X2 4 2
2 0
0

Figure 8.4 B. Point B Equal to A and C 47

 Y

250

167

83
A C

0 20
20 18
18 16
16 14
14 12
12 10
10 8
8 6 X1
X2 6 4
4 2
2 0
0

Y Figure 8.4 C . Point B Greater than A and C

250

B
167

83

A C

0 20
20 18
18 16
16 14
14 12
12 10
10 8
8 6 X1
6 4
X2 4 2
2 0
0
Figure
g 8.4 D. Point B Greater than A and C
48
 Y

Y 250
250

167
167

83
83 B C
A

0
0 20 A B C 20 18 18 20
18 16 16 18 20 16 14 14 16
14 12 10 10 12 14 12
10 8 10 12
8
8 6 6 8 6 4
6
X2 4 2 2 4 X1 X2 4
2 2 X1
0 0 0 0

Y 250

250
B
167

167

B 83
83
A C A C

0
20 18 18 20
0 20 16 16
20 18 14
16 14 16 18 14
12 10
12
12 10 12 14 10
8 8
10 6
8 8 6 4 X1
6 4
6
4 4 X1 X2 2 0 2
X2 2 0 2 0
0

Figure 8.4 Constrained Maximization under Alternative

Isoquant Convexity or Concavity Conditions
49
 20 Global
Land Profit Global
Maximum Output
18 =1 Maximum

=0
16

14

12

10
A

8 B C
L* L*
R
6
X
4
X

0
0 2 4 6 8 10 12 14 16 18 20

X (a bundle of all inputs but land)

Figure 8.5 The Acreage Allotment Problem

50
x2 x2

D
D 40
C C
B
40
A 30 B 30
20 A 20
10 10

0 x1 0 x1
0A > AB > BC > CD 0A < AB < BC < CD

x2
D

C 40

B 30

A 20
10

0
0A = AB = BC = CD x1

Figure 9.1 Economies, Diseconomies and Constant Returns to Scale

For a Production Function with Two Inputs

51
 10
X2

0
0 2 4 6 8 10

X1

Figure 10.1 Isoquants for the Cobb-Douglas Production Function

52
 A . Surface y = x10.4x20.6
10
X2

0
0 2 4 6 8 10
X1
B. Isoquants y= x10.4x20.6

Figure 10.2 Surfaces and Isoquants for the Cobb-Douglas

Type
yp Production Function 53
C. Surface y = x10.1x20.2

10
X2

0
0 2 4 6 8 10
X1
D. Isoquants y = x10.1x20.2
Figure 10.2 Surfaces and Isoquants for the Cobb-Douglas
54 Type Production Function
E. Surface y = x10.6x20.8

10
X2

0
0 2 4 6 8 10
X1
F. Isoquants y = x10.6x20.8
Figure 10.2 Surfaces and Isoquants for the Cobb-Douglas
Type
yp Production Function 55
G . Surface y = x10.4
0 4x 1.5
2
15

10
X2

0
0 2 4 6 8 10
X1
H. Isoquants y = x10.4x21.5
Figure 10.2 Surfaces and Isoquants for the Cobb-Douglas
Type Production Function

56
 I. Surface y = x11.3x21.5

10
X2

00 2 4 6 8 10
X1
J. Isoquants y = x11.3x21.5

Figure 10.2 Surfaces and Isoquants for a Cobb-Douglas 57

Type Production Function
 A. Surface
10
X2

0
0 2 4 6 8 10
X1
B. Isoquants
58 Figure 11.1 The Spillman Production Function
 3

X2
Maximum
Ridge Line 2 Output
- 2

2 2

0
0 1 2 1 3
-
X1 1

Figure 11.2 Isoquants and Ridge Lines for the Transcendental,

1 = 2 -2; 1 = 3 = 0

59
 A. Surface
4

X2

0
0 1 2 3 4
X1

B. Isoquants
Figure 11.3 The Transcendental Production Function
60 Under Varying Parameter Assumptions
C. Surface

3.90

X2

2.92

1.95

0.97

0 00
0.00
0.00 0.97 1.95 2.92 3.90
X1

D. Isoquants
Figure 11.3 The Transcendental Production Function
Under Varying Parameter Assumptions 61
 E . Surface
4

X2

0 0 1 2 3 4
X1

F. Isoquants
Figure 11.3 The Transcendental Production Function
62 Under Varying
y g Parameter Assumptions
p
G. Surface

0.5
X2

0.4

0.3

0.2

0.1

0.0 0.0 0.1 0.2 0.3 0.4 0.5

X1

H. Isoquants
Figure 11.3 The Transcendental Production Function
Under Varying Parameter Assumptions 63
 I. Surface
1.00
X2

0.75

0.50

0.25

0.00
0.00 0.25 0.50 0.75 1.00
X1

J. Isoquants
Figure 11.3 The Transcendental Production Function
Under Varying Parameter Assumptions
64
 A. Surface

20
X2

16

12

0
0 4 8 12 16 20
X1

B. Isoquants
Figure 11.4 The Polynomial
y = x1 + x12 0.05 x13 + x2 + x22 0.05 x23 + 0.4 x1 x2
65
 F
x2
M

D P2

K Midpoint

B P1

y*

0 C J A E L G X1

Figure 12.1 The Arc Elasticity of Substitution

66
A. Case 1 Surface
10
X2

0
0 2 4 6 8 10
X1

B. Case 1 Isoquants
Figure 12.2 Production Surfaces and Isoquants for the CES Production
Function under Varying
y g Assumptions
p about 67
 C. Case 2 Surface
10

X2
8

x2 = (k/-1/ 2

0 0 2 4 6 8 10
X1
x1 = (k/-1/

D. Case 2 Isoquants
Figure 12.2 Production Surfaces and Isoquants for the CES
Production Function under Varying
y g Assumptions
p about
68
 E. Case 3 Surface
10
X2

0
0 2 4 6 8 10
X1

F. Case 3 Isoquants

Figure 12.2 Production Surfaces and Isoquants for the CES Production
Function under Varying Assumptions about
69
 G. Case 4 Surface

10
X2

0
0 2 4 6 8 10
X1

J Case 4 Isoquants

Figure 12.2 Production Surfaces and Isoquants for the CES Production
70 Function under Varying Assumptions about
I . Case 5 Surface approaches -1

10
X2

0
0 2 4 6 8 10
X1

J. Case 5 Isoquants approaches -1

Figure 12.2 Production Surfaces and Isoquants for the CES Production
Function under Varying Assumptions about
71
$

MFC1

MFC2
AVP
MFC3
Input (x)
Demand MFC4

VMP

Figure 13.1 The Demand Function for Input x (No Other Inputs)

72
x2 x2 x2

y""

y' y" y"

y' y'

x1 x1 x1
A B C

Figure 13.2 Possible Impacts of an Increase in the Price of x1

on the use of x2

73
$

MFC1
AVP3
AVP2
MFC2
AVP1
Input (x)
Demand
MFC3

x1
VMP3
VMP2
VMP1

Fi
Figure 13.3
13 3 Demand
D d ffor IInputt x1 when
h aDDecrease iin th
the Price
Pi
of x1 Increases the Use of x2

74
 Maximum TR

Total
Revenue

2
TR = ay by

|Ep| > 1
|Ep| = 1

Demand
p = a - by

|Ep| < 1

0 M T
y
|Ep| = - Ep

Marginal Revenue
MR = a - 2by

Figure 14.1 Total Revenue, Marginal Revenue,

and the Elasticity of Demand
75
$ $

p o TPP p o TPP
n
p TPP
TVP

n
p TPP
TVP

o n o n
x x x x x x
A B
$

o
p TPP
o o
p = p (y )
n n
p = p (y ) n
p TPP
o o TVP
y = y (x )
n n
y = y (x )

o n
x x x
C

Figure 14.2 Possible TVP Functions Under Variable Product Prices

76
Guns

Production
Possibilities Curve
for a Resource
Bundle X o

Butter

Figure 15.1 A Classic Production Possibilities Curve

77
 Corn

(bu. per
acre)

136
TPP

111

x (other inputs)

Panel A

Fi
Figure 15.2
15 2 Deriving
D i i a Product
P d t Transformation
T f ti
Function from Two Production Functions

78
 Soybeans

(bu. per
acre)

55
TPP

x (other inputs)

Panel B

Figure 15.2 Deriving a Product Transformation Function

from Two Production Functions
79
Soybeans (bu.
(bu per acre)
55

50

45
x = 10
40

35

30

25

20

15

10

0
0 10 20 30 40 50 60 70 80 90 100 110 120 130 140
111 136
Corn (bu. per acre)

Panel C

Figure 15.2 Deriving a Product Transformation Function

from Two Production Functions

80
y2 y2 Supplementary
g
Range

y1
y1
Competitive Supplementary

y2 Complementary
y2
Range

y1 y1

Complementary
p y Joint

Figure 15.3 Competitive, Supplementary,

Complementary and Joint Products

81
X

Y1
Y2

A. Surface approaches -1

10

Y2
8

0
0 2 4 6 8 10
Y1

B. Isoproduct Contours approaches -1

Figure 15.4 Isoproduct Surfaces and Isoproduct Contours for a
CES Type of Function, <-1
82
 X

10.00

6.67

3.34

0.01 10
10
8 8
6 6
Y1
4 4
Y2
2 2
0
C. Surface = -2 0

10
Y2

0
0 2 4 6 8 10
Y1

D. Isoproduct Contours = -2
Figure 15.4 Isoproduct Surfaces and Isoproduct Contours
for a CES Type of Function, <-1
83
 X

10.00

6.67

3.33

0.00 10
10
8 8
6 6
Y1
4
Y2 4
2 2
0 0
E. Surface = -5
10
Y2

0
0 2 4 6 8 10
Y1

F. Isoproduct Contours = -5
Figure 15.4 Isoproduct Surfaces and Isoproduct Contours
84 for a CES Type of Function, <-1
 X

10.00

6.67

3 33
3.33

0.00 10
10
8 8
6 6
Y1
4 4
Y2
2 2
0 0
G. Surface = -200

10
Y2

0
0 2 4 6 8 10
Y1

H. Isoproduct Contours = -200

Figure 15.4 Isoproduct Surfaces and Isoproduct Contours
for a CES Type of Function, <-1
85
 Figure 16.1 A Family of Product Transformation Functions

86
 10
Y2
Output
Expansion
Path
8
Product
Transformation
Functions Ro
p2
6

Isorevenue
Lines
4

p
1
p
2
0
Y1 Ro
0 2 4 6 8 10
p
1

Figure 16.2 Product Transformation Functions, Isorevenue

Lines and the Output Expansion Path

87
Tobacco
Global
Output Pseudo Profit
Scale Line for Maximum
Tobacco

10
Output Output Pseudo
Expansion Scale Line
Path For Other Crops
(Y)
8 A

6
B
T*
C
4

0
0 2 4 6 8 10 12 Y

Figure 16.3 An Output Quota

88
Forage
(z2 )
Isoquants for
Beef Production
MRSx x 1 2

= RPTz z
1 2

Product
Transformation
Function for
Grain and
Forage
Grain (z1 )

Forage
(z2 )

Sell

Isocost or
Isorevenue
Produce Line
pz
1

p z2

Produce Purchase Grain (z1 )

Figure 17.1 An Intermediate Product Model

89
$ per bu.

MC

C MR =
Price of
Corn
AC
B AVC

Output
of Corn

Figure 19.1 Output of Corn and Per Bushel Cost of Production

90
Probabilities Probabilities
and Outcomes And Outcomes
are Known Are not known

Risky Events Uncertain Events

Figure 20.1 A Risk and Uncertainty Continuum

91
Utility Utility

Risk-Averse Risk-Neutral Income

Income
Utility

Risk-Preferrer
Income

Figure 20.2 Three Possible Functions Linking Utility to Income

92
Expected Expected
Income Income

Income Variance Income Variance

Risk-Averse Risk-Neutral

Expected
Income

Risk Preferrer Income Variance

Figure 20
20.3
3 Indifference Curves Linking the Variance of
Expected Income with Expected Income

y2

Curve B
Curve A

C
Curve C

y1
Figure 20.4 Long Run Planning: Specialized and Non-Specialized
Facilities 93
y212

Constraint 1 (Amount of x1 Available)

10

6 2/3

6
Feasible 4
Region Constraint 2 (Amount of x2 Available)
5

y2 4
Product
Transformation
Function Objective Function

Feasible 4
Region

0
2 2/3 y1
0 2 4 6 8 10 12 14 16

Figure 22.1 Linear Programming Solution in Product Space

94
 4
x2

Feasible
Isoquant Region
Feasible

Isoquant

2
Constraint 2

12

16

Constraint 1
Objective Function

0 x1
0 2 3 4 5
1

Figure 24.2 Linear Programming Solution in Factor Space

95
 x2
x2

x1 x1
Diagram A Diagram B
x2

x1
Diagram C

Figure 23.1 Some Possible Impacts of Technological Change

96
X2 X2

Assumption 1 Holds X1 Assumption 1 Fails X1

X2
X2

X1 X1
Assumption 2 Fails Assumption 2 Holds

Figure 24.1 Assumptions (1) and (2) and the Isoquant Map
97
X2

P1
X2

P2
X2

X1 X1 X1

Figure 24.2 A Graphical Representation of the Elasticity of Substitution

98