Section4

Question 1

Production Function Definition

Answer 1

• A mathematical representation of the production process.
• It indicates the highest output a firm can produce for a specified combination of inputs, given the state of technology.

Question 2

Simplified Production Process

Answer 2

• Inputs: labor, capital, raw materials, energy
• Output: the amount of goods or services produced
• Production technology: combination of inputs to produce goods and services

Question 3

Short Run vs Long Run in Production

Answer 3

• Short run: Some variable (e.g., labour) and some fixed (e.g., capital) inputs
• Long run: All inputs are variable

Question 4

Marginal Product Definition

Answer 4

The additional output produced when one input increases by 1 unit, while other inputs remain constant.

Question 5

Diminishing Marginal Product

Answer 5

• As the quantity of an input increases, its marginal product declines (other inputs are fixed).
• Graph: Represented as a concave production curve.

Question 6

Cobb Douglas Production Function

Answer 6

Formula: Q = z C^α L^β
- This function is widely used to represent production processes.
- z, α, β are constants; C (capital) and L (labour) are variable inputs.

Question 7

Labor Productivity Definition

Answer 7

• Ratio of total output to the amount of labour used.
• Example: Q/L (Total output/Total labor)

Question 8

Total Factor Productivity (TFP)

Answer 8

• Ratio of total output to an index of total input.
• Used to compare efficiency across firms or over time.

Question 9

Törnqvist TFP Change Index

Answer 9

The Törnqvist index measures the overall growth rate using revenue and cost shares as weights for inputs and outputs.