Lecture2.1.a Flashcards
Refers to the technical relationship between of inputs of resources and output of products
Production Function
Product Function can be represented in
Graphical
mathematical
tabular forms
Tradition output as function of inputs such as
Land
Labor
Capital
Modern specifications include
Management
state of resources
PF may assume different functional forms
linear
Quadratic
Cobb-Douglas
Transcendental
Constant Elasticity of Substitution
Translog
It refers to the total output that can be obtained from given combination of input
Total Physical Product (TPP)
It is the additional output obtained from additional unit of input
Marginal Physical Product (MPP)
It is the output per unit of input on the average
Average Physical Product (APP)
How many Stages of production are there?
3
Stage 2 is the most economically relevant
This implies that MPP of variable input eventually decreases
Law of Diminishing Marginal Returns
Measures the responsiveness of output to change in input quantity
Elasticity of Production
How do you get the elasticity of production
ratio of MPP to APP
MPP/APP
At low levels of variable input used( Stage I) how responsive is it to change in variable input used
Highly responsive
At high levels of variable input used( Stage I) how responsive is it to change in variable input used
Less and less responsive (Elasticity decreases)
