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Production Theory

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Output
a physical precisely specifies the relationship between the inputs and outputs
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Input
the materials, labor, land, equipment (capital) that a firm uses to produce their outputs
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Efficiency
a production method is efficient if there is no other way for the firm to produce a larger amount of output using the same number of inputs
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Production Function
a function of the form Output=F(inputs) giving the amount of output a firm can produce from given amounts of inputs using the efficient production methods
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Average Product (AP)
Common measuring device for estimating the units of output, on average per input unit.
-Output per worker: Measures production constant (capital, in this case)
AP= Q/L
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Marginal Product (MP)
Metric for estimating the efficiency of each input which the input's MP is equal to the incremental change in output created by small change in input
-This is the increase in output from the latest worker
-Must hold other factors constant
-This tells us the contribution of the last hired worker (or loss from last fired worker)
-The extra output produced by change in marginal units of labor (aka last worker added)
MP= deltaQ/deltaX1
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Law of Diminishing Marginal Returns
a well-known occurrence where when managers add equal increments of an input while holding other input levels constant, the incremental gains to output eventually get smaller
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Isoquant
Curve showing all possible (efficient) input bundles capable of producing a given output level.
-All combinations of L and K that produce: Qbar
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Marginal Product
Effect of one more unit of input, other inputs held constant
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Marginal Rate of Technical Substitution (MRTS)
MRTS shows the rate of at which one input is substituted for another (with output remaining constant) while we move along a particular isoquant.
-All points on the isoquant reflect the same output.
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Isocost Curve
contains all input combinations with the same cost
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question
Output
a physical precisely specifies the relationship between the inputs and outputs
question
Input
the materials, labor, land, equipment (capital) that a firm uses to produce their outputs
question
Efficiency
a production method is efficient if there is no other way for the firm to produce a larger amount of output using the same number of inputs
question
Production Function
a function of the form Output=F(inputs) giving the amount of output a firm can produce from given amounts of inputs using the efficient production methods
question
Average Product (AP)
Common measuring device for estimating the units of output, on average per input unit.
-Output per worker: Measures production constant (capital, in this case)
AP= Q/L
question
Marginal Product (MP)
Metric for estimating the efficiency of each input which the input's MP is equal to the incremental change in output created by small change in input
-This is the increase in output from the latest worker
-Must hold other factors constant
-This tells us the contribution of the last hired worker (or loss from last fired worker)
-The extra output produced by change in marginal units of labor (aka last worker added)
MP= deltaQ/deltaX1
question
Law of Diminishing Marginal Returns
a well-known occurrence where when managers add equal increments of an input while holding other input levels constant, the incremental gains to output eventually get smaller
question
Isoquant
Curve showing all possible (efficient) input bundles capable of producing a given output level.
-All combinations of L and K that produce: Qbar
question
Marginal Product
Effect of one more unit of input, other inputs held constant
question
Marginal Rate of Technical Substitution (MRTS)
MRTS shows the rate of at which one input is substituted for another (with output remaining constant) while we move along a particular isoquant.
-All points on the isoquant reflect the same output.
question
Isocost Curve
contains all input combinations with the same cost

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