ShmoopTube

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And finance Allah Shmoop what Our production functions well Grandma's

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air The source of all A lot of useful wisdom

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They say stuff like happiness isn't found It's created and

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good manners don't cost nothing And there hasn't been any

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good music since the the Elvis died Okay well maybe

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not Everything they say is golden But here's another good

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one You get out of something what you put into

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it Yeah well that one actually works for economics to

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it's the basic sentiment behind the production functions The production

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function is a process that economists used to show how

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much stuff you can make for every potential combination of

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input It's essentially a mathematical equation based on data gathered

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through the production process And it allows companies to graph

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what production would look like given different inputs You know

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they consider different questions Like what if we use more

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workers Or what if we bought Mohr equipment You know

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some big fancy factory with robots What if we replaced

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the dehydrated milk in our baby formula with pot ash

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All right well these are the kinds questions of production

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function answers and well then businesses can allocate their resource

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is in the most efficient way possible Well they find

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the point on the graph where they get the most

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out of what they're putting in and that's what they

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shoot for McDonald's is slowly replacing human workers with robots

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Well how do they know if it's a good investment

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Well they asked the production function or at least look

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at it a fry flipping robot Kaswell ten thousand dollars

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at volume It costs another two thousand dollars a year

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in maintenance and appreciation per year and that fry flipping

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baht can cover one friar And there are five fryers

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at the restaurant so it takes five bots to replace

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one worker or about fifty grand to replace that one

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worker Wealthy company does some trials and finds that a

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fry flipping robots can do the job two times faster

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than one person In actuality or reality that person cost

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twenty dollars an hour after salary of fifteen bucks and

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then taxes and all the everything's company has to pay

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pension health care all that stuff So over the course

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of a year a fulltime fried flipper cost McDonald's forty

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thousand dollars well to replace the employees the company needs

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five bots costing a total of fifty grand It'll cost

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another ten thousand dollars total in the maintenance and appreciation

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But the Frye body is twice as fast as the

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worker meaning McDonald's Khun turnover twice a cz many fries

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So you'd need to workers to match the output of

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the fry bots Well the bots cost say sixty thousand

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dollars in Year one And yes we're making up a

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lot of numbers The workers costal eighty thousand those two

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workers But the company is already in the black They've

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made twenty thousand dollars in savings by replacing those low

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skilled workers with robots Well the production function can have

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many variables in practice The production function depends on the

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product being produced Different products require different levels of inputs

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and the relationships between the inputs are different That cab

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all of relationships includes things like land and labor and

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capital in raw materials and time However many of these

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dropout is being irrelevant or they get combined and kind

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of fade away Key idea here is that the simple

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version of all of this has two variables to variable

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inputs There's labor that's usually represented by a big fancy

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capital L And then there's capital that's usually represented by

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you Hey there And this combo gives you the quantity

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of output like in the equation And this gets a

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queue right Belle Plus Que is cute that's in its

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simplest form and that's the production function And that's what

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it looks like The amount of labour and the amount

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of capital gives you the amount of output The production

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function can help measure the marginal productivity of one factor

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of production It can also help figure out the least

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expensive and most efficient way to make a product like

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Say you're going to make pies with Grandma You're going

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to need to spend a little capital on ingredients and

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you know pie tins Well that's the capital That's the

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big K You've also got labor That's you And grandmama

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That's the big Al there for labor Enough for losers

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Sorry Grandma Alright now onto your production function right there

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Well you could decide whether getting some more money for

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ingredients will help you bake more pies Or if you

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call your cousins to help with the baking and Ad

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Tio El there Or you could do both Now we

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just need to talk to Grandma about her musical taste 00:04:17.677 --> [endTime] Yeah

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