SAS12: Production Concept in Health Care Flashcards
It is the creation of goods and services using the inputs of production.
Production
This is the physical relationship between the inputs and outputs of goods and service.
Production Function
What is the formula for Production Function?
Q = f ( X )
What does Q and X represent in Q = f ( X )?
Q = output & X = input
This refers to the goods and services that have been created using the production inputs.
Outputs
This refers to the factors of production which include land, labor, capital and entrepreneurship.
Inputs
What are the 2 types of Inputs of Production?
Fixed Input & Variable Inputs
These are those that don’t change no matter how much or how little is produced. (Ex. land and capital)
Fixed Input
These are the ones that change depending on the volume or amount of production. (Ex. labor and entrepreneurship)
Variable Inputs
What are the 2 aspects of Production Decision?
The ability to produce & the willingness to produce
This production decision is prescribed by resources availability and state of technology.
The ability to produce
This production decision is prescribed by the profit incentives.
The willingness to produce
In this, the quantities of one or more production factors cannot be changed or that the use of at least one factor of production cannot be changed.
Short-run
In this, all factors can be changed.
Long-run
This states that as “quantities of one variable factor are increased, while other factor inputs remain constant, all things being equal, a point is reached beyond which the addition of one more unit of the variable factor will result in a diminishing rate of return and the marginal physical product will fall.”
The Law of Diminishing Marginal Returns
This refers to the total production or output.
Total Product
It is the additional output produced by employing one additional unit of input holding the level of usage of all other inputs constant.
Marginal Product
What is the formula for Marginal product?
MP = △TP / △X or MP = △Q / △X
It is the output produced per unit of the input.
Average Product
What is the formula for Average Product?
AP = TP / X
The falling portion of the marginal product is called?
The Law of Diminishing Marginal Returns
What are the Assumptions of the Law of Diminishing Marginal Returns?
No Change in Technology, Short Term, Homogenous Units, and Measurement of Product
The law assumes that the progressive increase in the input is not accompanied by any change in the
techniques of production.
No Change in Technology
It is unlikely that all the other variables factors of production will remain unchanged over a long period of time, making the law inapplicable in long term scenarios.
Short Term
The law assumes that the units of all the variable factors of production are equal.
Homogenous Units
The law assumes that the output of the production process can be measured or quantified in physical units, such as kilograms, liters or number of units.
Measurement of Product
This stage of production in the law of diminishing returns is characterized by tremendous growth.
Stage One
This stage of production in the law of diminishing returns is when the marginal returns start decreasing.
Stage Two
This stage of production in the law of diminishing returns is the final stage. During this stage, the marginal returns become negative.
Stage Three
It shows the different combinations of capital and labour that give the same output (TPP).
Isoquant
What does TPP mean?
Total Physical Product
It is usually shaped concave because of the law of diminishing returns.
Isoquant
This is the amount of one factor that can be replaced by one factor.
Marginal Rate of Substitution
What is the formula for Marginal rate of factor substitution?
MRS = △K / △L
It shows all the combination of factors that cost the same to employ.
Isocost
It shows different levels of output.
Isoquant Map
This is when a firm will wish to produce at the point of the highest possible isoquant and minimum possible isocost.
Profit Maximization
