Boogaloo Pt 2 Flashcards
Factors of production
Inputs to production (land, labor, capital, raw materials)
Capital goods
Inputs to production that are themselves produced goods
Financial capital
Money needed to start or maintain a business
Physical capital
Produced factors of production
Technological constraints
Only certain combinations of inputs are feasible ways to produce a given amount of output
Production set
Set of all combinations of inputs and outputs that are technologically feasible to produce
Production function
Boundary of the production set
Isoquant
Set of all possible combinations of outputs that lead to a given amount of output
Cobb douglas production function
Well-behaved functions that are asymptotic to both axes
Ax(1)(a)x(2)(b)
Monotonic
Increase one input, output cannot fall
Free disposal
Firm can costlessly dispose of any inputs, so extras cannot have negative value
Convex
Weighted average produces as least as much output
Marginal product
Additional output from a little more of one input, holding others constant
TRS technical rate of substitution
How much of one factor is needed to compensate for losing another factor
Law of diminishing marginal product
The marginal product of a factor will diminish as we get more and more of that factor, when all other inputs are held fixed
Diminishing technical rate of substitution
Isoquants have a convex shape; tradeoffs less steep when inputs are roughly equal
Short run
Some factors of production aren’t fixed
Long run
All factors of production can be varied
Constant returns to scale
Double the inputs, double the output
Increasing returns to scale
Double the inputs, quadruple the output
Decreasing returns to scale
Triple the inputs, double the output
Possibly forgot to account for fixed input (really short run phenomenon)
Competitive market
Individual producers take prices as outside of their control
Profits
R-C
Opportunity costs
Cost of foregoing other opportunities
Fixed factor
Factor that is in a fixed amount for the firm
Variable factor
Factor that the firm can use in different amounts
Quasi-fixed factors
Factors of production that must be used in a fixed amount, independent of the output of the firm, as long as the output is positive
Isoprofit lines
All combinations of the input goods and output good that give a constant level of profit
Rearrange profit = priceoutput - costinputs
