Lecture 2.1b Flashcards
who make decisions?
Farm managers or farm operators
what is the Objective?
maximize profits
set of rules that ensure that the choices or
decisions made will result in maximum
profit
Production Economic Principles
rate of input use that will maximize
profit given the state of the production
technology and prices of inputs and outputs
A decision-optimal input use
value of total output using a given level of input; also
equivalent to total revenue from a given level of input
Total Value Product (TVP)
value of output per unit input used on the average
Average Value Product (AVP)
additional value of output obtained from an additional unit of input
Marginal Value Product (AVP)
total cost of resource or input used in the production
Total Factor Cost (TFC)
cost of resource or input
used per unit on the average
Average Factor Cost (AFC)
additional cost of using an
additional unit of resource
or input
Marginal Factor Cost (MFC)
Equilibrium Condition
MVP=MFC
At profit maximum,
the slope of
MVP is less than the slope of MFC.
maximum profit, hence state of
rest with x*
MVP=MFC
when MVP>MFC
input use not optimal β increase
When MVP<MFC
input use not optimal β decrease
True or false: If the inputs were not free, the
profit-maximizing level of input
use will always be less than the
level of input that maximizes
production
True
that value of one unit of input in terms of the revenue that a
producer can obtain from using a unit of an input.
SP/unit
SP/unit=?
MVP
πΊπ· =?
MVP/MFC
the value of a peso worth of an input in terms of its
revenue contribution
SP
