ECON 3310 EXAM2 TARA BROWN UT-ARLINGTON PART 2 (8PRODUCTION)

Factors of Production

are inputs or ingredients mixed together by a firm through its technology to produce output.

Production Function

is a relationship between inputs and output that identifies the maximum output which can be produced per time period by each specific combination of inputs.

Q=f(K,L)

a simple production function in which there are only two inputs, capital and labor.

Total Product

is the total quantity of a good provided in a given period.

It is the amount of output.

Average Product

is the amount of production provided per unit of a factor of production.

APL = TP/L

Marginal Product

is the additional output that can be produced by adding one more unit of a particular input while holding all other inputs constant.

MPL = DTP/DL = d f(K,L) / d L

Total Product, Marginal Product

________ is the total quantity of a good provided in a given period.

___________ is the change in total product due to a one unit increase in a factor of production.

(SEE GRAPHICALLY ON SLIDE 5)

Increasing Marginal Returns, quantity produced per worker, Total Product, increasing

__________ is when the marginal product of an additional worker exceeds the marginal product of the previous worker.

When there are few workers, they can't get everything done. As you hire more workers, the work gets done (there is an increase in _______________________).

MPcurrent > MPpreviously when an additional input (labor) is added; ______ is increasing at an ___________ rate.

(SEE GRAPHICALLY ON SLIDE 7)

Decreasing Marginal Returns, positively increase, Total Product, decreasing

___________ is when the marginal product of an additional worker is less than the marginal product (MP) of the previous worker.

Each additional worker is not helping as much as the previous worker, but they do help and _________output.

MPcurrent < Mppreviously when an additional input (labor) is added; ________ is increasing at an __________ rate.

(SEE GRAPHICALLY ON SLIDE 9)

Negative Marginal Returns, Total Product, decreasing

_____________ is when an additional person decreases the amount of quantity produced.

Too many cooks in the Kitchen, New Workers Distract, etc.

MPcurrent < 0 when an additional input (labor) is added; __________ is ____________.

(SEE GRAPHICALLY ON SLIDE 11)

The law of diminishing returns

as successive units of a variable resource are added to a fixed resource, the marginal product of the variable resource will eventually decline.

variable inputs, labor, diminishing, The law of diminishing returns

Because there are fixed things (plant size) in the short run, increasing _____________ such as _______ will lead to ________ returns. This is consistent with ______________.

isoquant

is a curve that shows all the combinations of inputs that, when used in a technologically efficient way, will produce a certain level of output.

(SEE GRAPHICALLY ON SLIDE 13 BELOW IS EXPLANATION OF GRAPH)

Q1: This represents all combination of inputs which will produce an output equal to Q1. However, the only technologically efficient production is along the isoquant Q1. Thus, we assume if we are producing Q1 units of output, we are using input bundles somewhere along the isoquant Q1.

Q1

production functions

Isoquants are derived from ______________.

(SEE SLIDE 14)

positively sloped, intersect

Isoquant Curves cannot be ____________, or _________________.

(SEE GRAPHICALLY ON SLIDE 15, EXPLANATION BELOW.) The Yellow Isoquant says that input bundle A and input bundle B produce the same output. The Pink Isoquant says input bundle B and input bundle C produce the same output. This would imply that input bundle A and input bundle C should produce the same output. However, input bundle A uses more inputs than input bundle C, so input bundle A must produce more output than input bundle C. So, this model is inaccurate and Isoquants can not intersect.

Marginal Rate of Technical Substitution

The negative of the slope of the isoquant indicates the _____________.

The Marginal Rate of Technical Substitution, MRTSxy = MPx/MPy = -change in Input Y/change in Input X

____________ is the amount by which one input can be reduced when one more unit of another input is added while holding the output constant.

equal to?

Returns to scale, how much inputs change, total products

__________ measures the percentage by which output changes as compared to the percentage all inputs increase.

The distance between the isoquants is ________________.

The percentage by which output changes is the percentage change in the ________________ listed by each isoquant. (LR PRODUCTION)

Economies of Scale

__________- Output to increase by an even higher % than the % a firm increases its inputs by. (LR PRODUCTION)

Diseconomies of Scale

_____________- Output to increase by a smaller % than the % a firm increases its inputs by.(LR PRODUCTION)

Constant Returns to Scale

__________- Output to increase by the same % that a firm increases its inputs by. (LR PRODUCTION)

FOR THIS SECTION OF QUIZLET. BTW.

Note we are discussing LR Production here. This is because we assume all of our inputs are variables (the can change)

In the SR, certain variables (typically Capital, etc.) are held constant.