production Flashcards
what is capital
long lved inputs such as land machinery
what is labour
workers/their hours worked
what is the production function and what does it represent
Q = f(L,K)
the maximum amount of quantity produced by given inputs
what inputs are fixed and variable in the SR
F: capital (K)
V: labour (L)
what inputs are fixed in the LR
none, all are variable
define MPL
How much will one extra worker increase output
What is the formula for MPL
DQ/DL
at what point does MPL = APL
at APL maximum point
APL formula
APL = Q/L
define APL
the average output each worker produces
what does an isoquant line represent
the combos of L/K that produce the same output
what are 2 rules of isoquants
they never cross, they always slope downwards
what does the slope of an isoquant represent
ability to replace one unit of input with another with Q remaining constant
what is the equation for the slope of an isoquant
MRTS = DK/DL
define diminishing marginal rates of technical substitution
- the more labour compared to capital a firm has the harder it is to replace capital with labour
give another way to define MRTS
MRTS = -MPL/MPK
what is the cobb douglas function
q= AL^aK^b
what is the MPL of the cobb douglas function
MPL = aq/L = a x APL
what is the MPK of the douglas cobb function
MPK = bq/K = b x APK
what can MRTS equate to in relation to the cobb doug function
MRTS = -aq/L/bq/K
what is the proof for constant decreasing and increasing returns to scale
q2 = A(2L)^a(2K)^b
=2^a+b AL^aK^b
= 2^a+b x q1
g = a+b
q2 = 2^g x q1
if g = 1 constant returns to scale etc
