en:elasticity-of-production

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en:elasticity-of-production [2018/07/22 09:51] federico |
en:elasticity-of-production [2019/02/06 07:52] (current) federico [Elasticity of Production] |
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The elasticity of production, also called **output elasticity**, is the percentaje change in the production of a good by a firm, divided the percentage change in an input used for the production of that good, for example, labor or capital. | The elasticity of production, also called **output elasticity**, is the percentaje change in the production of a good by a firm, divided the percentage change in an input used for the production of that good, for example, labor or capital. | ||

- | The elasticity of production shows the **responsiveness** of the output when there is a change in one input. | + | The elasticity of production shows the **responsiveness** of the output when there is a change in one input. |

- | It is defined as de proportional change in the product, divided the proportional change in the quantity of an input. | + | It is defined as de proportional change in the product, divided the proportional change in the quantity of an input. |

**For example**, if a factory employs 10 people, and produces 100 chairs per day. If the number of people employed in the factory increases to 12, that is, a 20% increase, and the number of chairs produced per day increases to 110 (that is, a 10% increase), the elasticity of production is: | **For example**, if a factory employs 10 people, and produces 100 chairs per day. If the number of people employed in the factory increases to 12, that is, a 20% increase, and the number of chairs produced per day increases to 110 (that is, a 10% increase), the elasticity of production is: | ||

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**ΔQ/Q / ΔL/L** = 10/100 / 2/10 = 0.1 / 0.2 = 0.5 | **ΔQ/Q / ΔL/L** = 10/100 / 2/10 = 0.1 / 0.2 = 0.5 | ||

- | If the production function contains only one input, the elasticity of production measures the degree of [[returns to scale]]. In this case: | + | If the production function contains only one input, the elasticity of production measures the degree of [[https://www.econowiki.com/doku.php?id=en:returns-to-scale|returns to scale]]. In this case: |

- | - if the elasticity of production is 1, the production has constant return to scale, at that point. | + | |

- | - if the elasticity of production is greater than one, the production has increasing returns to scale at that point. | + | - if the elasticity of production is 1, the production has **constant returns to scale**, at that point. |

- | - if the elasticity of production is less than one, the production has decreasing returns to scale at that point. | + | |

+ | - if the elasticity of production is greater than one, the production has **increasing returns to scale** at that point. | ||

+ | |||

+ | - if the elasticity of production is less than one, the production has **decreasing returns to scale** at that point. | ||

===== Using a production function ===== | ===== Using a production function ===== |

en/elasticity-of-production.1532267470.txt.gz · Last modified: 2018/07/22 09:51 by federico