ECON 295 - Chapter 5

Vocabulary flashcards covering foundational concepts of production functions, isoquants, marginal products, and MRTS from ECON 295.5.

Production Function

A mathematical relationship represented as $q = f(L, K)$, which specifies output given inputs of labor ($L$) and capital ($K$), assumed to be increasing if both goods are goods and twice differentiable.

Isoquant Curve

A curve defined by setting the production function equal to a constant level of output, expressed as $f(L, K) = \bar{q}$, such as $10L^{\frac{1}{2}}K^{\frac{1}{2}} = 36$.

Marginal Rate of Technical Substitution ($\text{MRTS}_{LK}$)

The ratio of the marginal product of labor to the marginal product of capital, defined as $\text{MRTS}_{LK} = \frac{\text{MP}_L}{\text{MP}_K} = \frac{\frac{\partial f(L, K)}{\partial L}}{\frac{\partial f(L, K)}{\partial K}}$.

Marginal Product of Labor ($\text{MP}_L$)

The short-run change in output with respect to labor, given mathematically by the partial derivative $\frac{\partial f(L, K)}{\partial L}$.

Marginal Product of Capital ($\text{MP}_K$)

The change in output with respect to capital, given mathematically by the partial derivative $\frac{\partial f(L, K)}{\partial K}$.

Cobb-Douglas Production Function

A production function formulation used to analyze returns to scale, illustrated by the form $f(L, K) = 10L^{\frac{1}{2}}K^{\frac{1}{2}}$.