Session 4 Flashcards
production function
the process of which inputs are turned into outputs
short run
at least one variable is fixed, usually capital
labour productivity
the average product of labour for an industry
MP(L)
(change in quantity/change in labour)
marginal product of labour: the additional output resulting from the addition of one more unit of labour, holding capital constant
AP(L)
(quantity/labour)
average product of labour:
output per unit of labour
MP(K)
(change in quantity/change in capital)
marginal product of capital
- the extra output produced by an extra unit of capital, holding labour constant
law of diminishing returns
(in the short run)
- holding capital constant, when labour increases and it results in smaller and smaller outputs
isocost lines
show all the input combinations associated with a given total cost
MRS
marginal rate of substitution
- describes how the firm can replace on input with another and still achieve the same ouput
MRTS =
(-change in capital/change in labour) and MP(L)/MP(K)
returns to scale
when all factor inputs are increased in proportion
increasing returns to scale
when all inputs are increased by x, our output increase by more than x
constant returns to scale
when all inputs are increased by x, and output increases exactly by x
decreasing returns to scale
when all inputs are increased by x and output increases by less than x
what level of labour does AP(L) reach its maximum
AP(L) = MP(L)
