Chapter 7 Production Flashcards

Inputs or ingredients mixed together by a firm through its technology to produce output
Ex. Motion picture studio uses inputs such as producers, directors, actors, costumes, capital, sound stage etc. to produce movie

Relationship between inputs and outputs that identifies the maximum output that can be produced per time period by each specific combination of inputs

L- Labor K- Capital Q - Output

Condition in which the firm produces the maximum output from any given combination of labor and capital inputs

Production function identifies hysical constraints with which the firm must deal

Achieve maximum output from whatever combination of inputs it employs

Short Run

Resources a firm cannot feasibly vary over the time period; costly to alter in a short time period
Ex. Commercial real estate developer unable to supply additional office space in response to increase in market demand

The total output of the firm; varies as the firm employs different quantities of labor

The total output (or total product) divided by the amount of the input used to produce that output
Total product and thus average product of labor depends on the amount of other inputs (capital) being used- the amount of non labor inputs are held constant

Represents the change in total output resulting from a one-unit change in the amount of the input, holding the quantitiesof other inputs constant

Total product wil rise; as long as an extra unit of labor produces some extra output (however small) total amount produced increases

Total product Falls

Total product is at its maximum

Employing a variable input at a level where Marginal Product is negative is technologically inefficent
* The firm can increase total product and lower production cost by using less of the variable input