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Labour Act Ghana

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Cost of production: the isoquant–isocost approach
In this appendix, we develop a model to determine how a profit-maximising firm will combine resources to produce a particular amount of output. The quantity of output that can be produced with a given amount of resources depends on the existing state of technology, which is the prevailing knowledge of how resources can be combined. Therefore, we will begin by considering the technological possibilities available to the firm.
The production function and economic efficiency
The ways in which resources can be combined to produce output are summarised by a firm’s production function. The production function identifies the maximum quantities of a particular good (or service) that can be produced per time period with various combinations of resources and with a given state of technology. The production function can be presented as an equation, a graph or a table.
The production function summarised in Table 8A.1 reflects, for a hypothetical firm, the output resulting from particular combinations of resources. This firm uses only two resources: capital and labour. The amount of capital used is listed in the left-hand column of the table, and the amount of labour employed is listed across the top. For example, if
1 unit of capital is combined with 7 units of labour, the firm can produce 290 units of output per period.
We assume that the firm produces the maximum possible output given the combination of resources employed, and that the same output could not be produced with fewer resources.
Since we assume that the production function combines resources efficiently, 290 units is the most that can be produced with 7 units of labour and 1 unit of capital. Thus, we say that the firm’s production is technologically (or productively) efficient.
We can examine the effects of adding additional labour to an existing amount of capital by starting with some level of capital and reading across the table. For example, when 1 unit of capital and 1 unit of labour are employed, the firm produces 40 units of output per period.
If the amount of labour is increased by 1 unit and the amount of capital employed is held constant, output increases to 90 units, so the marginal product of labour is 50 units. If the amount of labour employed increases from 2 to 3 units, other things constant, output goes to 150 units, yielding a marginal product of 60 units. By reading across the table, you will discover that the

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