Chapter 5 Test 1 Flashcards
Production function
a function that defines the maximum amount of an output that can be produced with a given set of inputs
Total Product
the maximum level of output that can be produced with a given set of inputs
Marginal Product
the change in total output that is attributable to the last unit of input
Increasing Marginal Returns
the range of input usage over which marginal product increases
Decreasing Marginal Returns
the range of input usage over which marginal product declines
Negative Marginal Returns
Range of input usage over which marginal product is negative
Value Marginal Product Labor
the value of the output produced by the last unit of input
Profit Maximizing Input Usage
…..
Cobb Douglas Function
a production function that assumes some degree of substitutability among inputs
Isoquant
Defines the combinations of inputs that yield the same level of output
Marginal Rate of Technical Substitution
the rate at which a producer can substitute between two inputs and maintain the same level output
Law of Diminishing Marginal Rate of Technical Substitution
a property of production function stating that as less of one input is used, increasing amounts of input must be employed to produce the same level of output
Why are isoquants convex?
- not perfectly substitutable
- also get into law of diminishing marginal rate of technical substitution
Profit Maximizing Condition
VMPL=W
What happens at the cost minimizing point?
the slope of the isoquant= the slope of the isocost
