Production & Resource Use - AMT 1035

Flashcards covering Production & Resource Use concepts from the AMT 1035 lecture, including perfect competition, input classification, production functions, and product curves.

Perfect Competition

Market conditions characterized by homogeneous products, no barriers to entry or exit, a large number of sellers, and perfect information.

Land (Classification of Inputs)

Includes renewable (e.g., forests) and non-renewable (e.g., minerals) resources.

Labor (Classification of Inputs)

All owner and hired labor services, excluding management.

Capital (Classification of Inputs)

Manufactured goods such as fuel, chemicals, tractors, and buildings, AND investment capital.

Management (Classification of Inputs)

Production decisions designed to achieve specific economic goals.

Production Function

A relationship showing the maximum output that can be produced with given combinations of inputs, typically represented as Output = f(variable input | fixed inputs).

Total Physical Product (TPP) Curve

A curve that shows the relationship between the quantity of a variable input (e.g., labor) and the total output produced, while all other inputs are held constant.

Stage 1: Increasing Returns (TPP Curve)

The stage of the TPP curve where adding more variable input leads to a more than proportional increase in total output, often due to specialization.

Stage 2: Diminishing Returns (TPP Curve)

The stage of the TPP curve where output continues to rise, but its slope decreases; each additional unit of variable input increases total output by a smaller amount.

Stage 3: Negative Returns (TPP Curve)

The stage of the TPP curve where adding more of the variable input actually causes total output to decrease, becoming counterproductive.

Law of Diminishing Marginal Returns

As successive units of a variable input are added to a production process with other inputs held constant, the marginal physical product (MPP) eventually declines.

Marginal Physical Product (MPP)

The change in total output that results from adding one more unit of a variable input, calculated as Change in Output ÷ Change in Input.

Average Physical Product (APP)

The average output per unit of a variable input, calculated by dividing the total physical product (TPP) by the number of units of the variable input.

Relationship where MPP > APP

When the Marginal Physical Product is greater than the Average Physical Product, the APP curve is rising.

Relationship where MPP = APP

When the Marginal Physical Product equals the Average Physical Product, the APP curve is at its maximum (the MPP curve intersects the APP curve).

Relationship where MPP < APP

When the Marginal Physical Product is less than the Average Physical Product, the APP curve is falling.

Optimal Input Usage

Identified by the TPP curve as the range of production, usually within Stage 2, where a business should operate to maximize efficiency.

Production Constraints

Limitations on total output due to the fixed nature of some inputs, explicitly made clear by the TPP curve.