Producer Behaviour Flashcards
What simplifications and assumptions are often made when looking at a firms production practices
Simplify the inputs to just labor and capital, assume that a firm wants to minimize costs, a single decided product. Capital cannot change in the short run, positive return to scale but diminishing returns to capital and labor and no budget constraint and infinite access to credit
How foes the marginal product relate to average in the production function
If the marginal product is higher cost than average, producing it will increase the average cost of products
What does diminishing marginal products for labor mean
That 2 seamstresses cannot produce twice as much as one if they don’t have the necessary capital. The incremental output from another unit if labor decreases
What is an isoquant curve
A curve of all combinations of input that can make the same output. Its slope is the marginal rate of technical substitution
What is an iso cost line
A line of all combinations if capital and labor a firm can purchase at a given time
How does technological improvement affect the isoquant line
It shifts it towards the origin as capital is relatively more worth per unit than labor
What is a firms expansion path
The path of ultimate bang for buck related to budget generated by combining isovost and iso quant lines at different levels
