Chapter 6 Flashcards
what are the three steps to understand the production decisions of firms?
- production technology
- cost constraints
- input choices
what is meant by ‘the factors of production’ ?
inputs into the production process (e.g. labour, capital, and materials)
what is the production function?
Function showing the highest output that a firm can produce for every specified combination of inputs
what is meant by ‘short run’ production decisions?
period of time in which quantities of one or more production factors cannot be changed
what is meant by ‘fixed input’?
production factor that cannot be varied
what is meant by ‘long run’ production decisions?
amount of time needed to make all production inputs variable
what is the average product?
output per unit of a particular input
what is the marginal product?
additional output produced as an input is increased by one unit
how is the average product of labour calculated?
output/labour input
how is the marginal product of labour calculated?
change in output/change in labour input
what is labour productivity?
Average product of labour for an entire industry or for the economy as a whole
what is the stock of capital?
Total amount of capital available for use in production
what do isoquants show?
the flexibility that firms have when making production decision
what is the marginal rate of technical substitution (MRTS)?
amount by which the quantity of one input can be reduced when one extra unit of another input used, so that the output remains constant
what are fixed-proportions production function?
Production function with L-shaped isoquants, so that only one combination of labour and capital can be used to produce each level of output
