BECO Exam 2 - Custom Scholars
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BECO Exam 2

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Production Function
Mathematical function that defines maximum amount of output that can be produced with a given set of inputs
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Total Product

Maximum level of output that can be produced with a given amount of input

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Average Product
A measure of the output produced per unit of input
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Short Run

Period of time where some factors of production (inputs) are fixed, usually capital

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Long Run

Period of time where all inputs are variable (can change)

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Isoquants

A curve that shows the various combinations of inputs that will produce the same level of output

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Marginal Product
The change in total product (output) attributable to the last unit of an input. The extra output obtained by using one more unit of labor/capital
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Marginal Rate of Technical Substitution
The rate at which a producer can substitute between two inputs and maintain the same level of output. The absolute value of the slope of the isoquant
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Returns to Scale
The rate at which output increases in response to proportional increases in all inputs
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Constant Returns to Scale (CRS)

doubling all inputs exactly doubles

of the output

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Increasing Returns to Scale (IRS)
doubling all inputs more than doubles the amount of output
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Decreasing Returns to Scale

Doubling all inputs less than doubles output

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Isocosts

combination of inputs that yield the same cost

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Elasticity

A measure of the percentage change in one variable brought about by a one percent change in some other variables

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Price Elasticity of Demand
the percentage change in quantity demanded of a good in response to a one percentage change in price
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Marginal Rate of Substitution

The slope of the indifference curve that captures how much of one good you can give up for one unit of another good

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Diminishing MRS

The MRS can vary along the indifference curve because the consumption of one good can be pushed too far

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Budget Constraint

the limit that income places on the combination of goods that an individual can buy

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Consumer Equilibrium

The objective of the consumer is to choose the consumption bundle with the highest utility while still being within their budget

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Cost Minimization

To maximize profits, the firm must produce its output at the lowest possible cost

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Marginal Cost

the additional cost of producing one more unit of output

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question
Production Function
Mathematical function that defines maximum amount of output that can be produced with a given set of inputs
question

Total Product

Maximum level of output that can be produced with a given amount of input

question
Average Product
A measure of the output produced per unit of input
question
Short Run

Period of time where some factors of production (inputs) are fixed, usually capital

question
Long Run

Period of time where all inputs are variable (can change)

question
Isoquants

A curve that shows the various combinations of inputs that will produce the same level of output

question
Marginal Product
The change in total product (output) attributable to the last unit of an input. The extra output obtained by using one more unit of labor/capital
question
Marginal Rate of Technical Substitution
The rate at which a producer can substitute between two inputs and maintain the same level of output. The absolute value of the slope of the isoquant
question
Returns to Scale
The rate at which output increases in response to proportional increases in all inputs
question

Constant Returns to Scale (CRS)

doubling all inputs exactly doubles

of the output

question
Increasing Returns to Scale (IRS)
doubling all inputs more than doubles the amount of output
question

Decreasing Returns to Scale

Doubling all inputs less than doubles output

question
Isocosts

combination of inputs that yield the same cost

question
Elasticity

A measure of the percentage change in one variable brought about by a one percent change in some other variables

question
Price Elasticity of Demand
the percentage change in quantity demanded of a good in response to a one percentage change in price
question
Marginal Rate of Substitution

The slope of the indifference curve that captures how much of one good you can give up for one unit of another good

question
Diminishing MRS

The MRS can vary along the indifference curve because the consumption of one good can be pushed too far

question
Budget Constraint

the limit that income places on the combination of goods that an individual can buy

question
Consumer Equilibrium

The objective of the consumer is to choose the consumption bundle with the highest utility while still being within their budget

question
Cost Minimization

To maximize profits, the firm must produce its output at the lowest possible cost

question
Marginal Cost

the additional cost of producing one more unit of output

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