Production Theory

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Output

answer

a physical precisely specifies the relationship between the inputs and outputs

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Input

answer

the materials, labor, land, equipment (capital) that a firm uses to produce their outputs

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Efficiency

answer

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

answer

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)

answer

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)

answer

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

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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

answer

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

answer

Effect of one more unit of input, other inputs held constant

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Marginal Rate of Technical Substitution (MRTS)

answer

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

answer

contains all input combinations with the same cost

1 of 11

question

Output

answer

a physical precisely specifies the relationship between the inputs and outputs

question

Input

answer

the materials, labor, land, equipment (capital) that a firm uses to produce their outputs

question

Efficiency

answer

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

answer

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)

answer

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)

answer

question

Law of Diminishing Marginal Returns

answer

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

answer

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

answer

Effect of one more unit of input, other inputs held constant

question

Marginal Rate of Technical Substitution (MRTS)

answer

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

answer

contains all input combinations with the same cost

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Production Theory

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