Production Theory Flashcards
Goods and services cannot be produced without utilizing the _____ of ____ such as ____, ____, _____ and_______.
the factors of production
land, labor, capital, and entrepreneurship
It is the fundamental decision of the firm to determine the _____ of _____ and _______ to produce and how much _____ of ______ to apply together with other inputs to generate an output with the ______ ____ of ______.
amount of goods and services
factors of production
highest level of efficiency
The transformation of inputs into outputs
Production
Two types of output
Goods and Services
Different levels of inputs can produce?
different levels of outputs
The ____ of a ____ is the process by which inputs are turned into outputs.
the technology of a firm
The technological relationship between quantity of physical inputs and the quantity of goods produced.
Production Function
Production Function is central concept in ____ ______theories as it is used to define ______ _____and distinguish between _____ and _____ ______ which is a primary focus of economics.
mainstream neoclassical
marginal product
allocative and distributive efficiency
used to model the case of numerous outputs and numerous inputs. These functions are generalizations of the simple production function in economics.
shepherds distance functions or alternatively directional distance functions
like demand, production functions have a _____ duration
finite
It depicts the flow of inputs that result to flow of output over time
Production Function
A firm’s production function is determined by the ____ of _____
state of technology
With each advancement in technology, the firm’s _____ ______ changes
production function
the total amount of a commodity that is produced with a given level of factor inputs and technology in a given period of time.
Total Product
the total product per unit of variable input
Average Product
addition in total output per unit change in variable input
Marginal Product
TPL =
ΣMP = AP x L
APL =
TP/L = Q/L
MPL =
Change in TP or Q/ Change In L
As MP increases, what happens to TP?
TP increases at an increasing rate
When MP falls but is positive, what happens to TP?
TP increases at a diminishing rate
MP = 0, what happens to TP?
TP reaches maximum
When MP is negative, what happens to TP?
TP decreases
When MP > AP, what happens to AP?
AP increases
When MP = AP, what happens to AP?
AP reaches maximum and it is constant
When MP < AP, what happens to AP?
AP decreases
the optimal level of production also known as ______ _______occurs when maximum output is obtained at the lowest possible cost.
producer’s equilibrium
Total Revenue and Total Cost Approach =
TR - TC = P
Marginal Revenue and Marginal Cost Approach =
MR = MC
MC must be less than MR before they are equal
These lines represent various input combinations which produce the same levels of output.
Isoquant Curve
Isoquant Curve is also known as?
the equal-product curve or production indifference curve.
Isoquant curve enables firms to optimize _____ _____ in order to maximize ______ and _____. It represents all ______ ______ of two inputs that produce the same amount of output.
their inputs
production and profits
possible combinations
the rate at which one input could be substituted for another
marginal rate of technical substitution
7 properties of isoquant curves
- Cannot Intersect
- Slope downwards
- Right curves are higher curves
- Convex to the origin
- Could not touch X and Y axis
- Do not have to be parallel to one another
- Oval Shaped
Iso means and Quant means?
Equal and Quantity
represent combinations of two factors that can be bought with different outlay.
Isocost Lines
Isocost lines are also called
Budget Line or Budget constraint lines
The isocost is tangent to the isoquant at the ___-______ _____ ______.
cost-minimizing input bundle
absolute value of an isocost line is equal to
ratio of input cost
absolute value of the slope of an isocost line is equal to
marginal rate of technical substitution.
when an isocost is tangent to an isoquant but does not intersect. When this happens, Ratio of prices of factors is equal to ratio of their marginal products.
Cost minimization
Cost minimization is equal to
MPL/W = MPK/R
