Chapter 12 (2)

Question 1

INPUTS

Answer 1

the ingredients that go into the production process–raw materials, labour, machines, time, and ideas

Question 2

OUTPUTS

Answer 2

the goods & services that are produced

Question 3

PRODUCTION FUNCTION

Answer 3

the relationship between the quantity of inputs & the quantity of outputs

Question 4

MARGINAL PRODUCT

Answer 4

the increase in output that is generated by an additional unit of input

–> Analogy: the increase in the # of pizzas that can be produced by hiring an additional employee

Analalogy, pizza business.

• –> the first few workers have an increasing marginal product
• ->Soon, however, each additional worker = contributes less to total production –> reflected by decreasing marginal product

Question 5

Principle of DIMINISHING MARGINAL PRODUCT

Answer 5

states that the marginal product of an input decreases as the quantity of the input increases.

Question 6

AVERAGE PRODUCT

Answer 6

the # of pizzas produced per worker, on average

–>The average product is total production divided by the number of workers.

–> When a employee’s marginal product = greater than the existing average product –> the average increases

–> As soon as a new worker’s marginal product = less than the existing average –> the average # of pizzas per workers start to fall