Chapter 8 Technology and Firm Behaviour

Flashcards focused on key terms and concepts from the lecture on technology and firm behavior, essential for understanding production functions, costs, and firm decision-making.

Production Function

A mathematical function that describes how many units of output can be produced from a given combination of inputs (factors of production).

Marginal Product of Labour (MPL)

The additional output generated by one extra unit of labour, calculated ast

Diminishing Marginal Returns

The principle that as more units of a variable input are added, while keeping other inputs fixed, the additional output produced by each new unit of input will eventually decrease.

Isoquant

A curve representing all combinations of inputs that produce the same level of output.

Marginal Rate of Technical Substitution (MRTS)

The rate at which one input can be substituted for another while keeping the output constant, denoted as MRTS = ΔK/ΔL along the same isoquant.

Returns to Scale

The way the output changes when all inputs are increased proportionally; can be constant, increasing, or decreasing.

Cobb-Douglas Production Function

A specific functional form of production function given by f(K, L) = AKaLb, which can exhibit diminishing marginal returns but increasing returns to scale.

Fixed Cost (FC)

Costs that do not vary with the level of output; they remain constant regardless of production levels.

Variable Cost (VC)

Costs that vary with the level of output produced.

Average Cost (AC)

Total cost per unit of output, calculated as AC(q) = C(q)/q.

Marginal Cost (MC)

The additional cost incurred to produce one more unit of output.

Minimum Efficient Scale (MES)

The lowest level of output at which long-run average cost is minimized.

Long-run Equilibrium

A state in which all factors of production can be varied, leading to optimal production and cost.

Short-run Decision Problem

A situation in which some factors of production are fixed, affecting the firm's ability to optimize outputs.

Supply Function

A function that describes how much of a good a firm will supply at different prices.