term 2 lecture 1 (technology) Flashcards
what is a firm?
a firm is a production unit that has a clear objective ( maximise profits, sales, minimise costs) and a technology and it faces a well defined enviroment: input markets and a output market
what is a technology?
a technology is a process by which inputs are converted into outputs.
what is a production function?
a description of what maximum output an input bundle can produce
what is a production plan?
a production plan is a combination of a quanity of output and a bundle of inputs that can produce that given quantity of output
when is a point on the production function technically efficient?
a point on the production function is technically efficient because it gives the highest output that an input bundle can produce
what is the production set?
the set of all feasible and efficient production plans
in general what is the effect of increasing the input
increasing the input in general should produce more output; the output can remain unchanged but it cannot fall
what are the assumptions which make technology well behaved?
assumptions of free disposal (equivaqently feasibility) and weak monotonicity of efficient output make our technology well behaved
what is the isoquant for y unit output?
it is the set of all input bundles that yield the same output level y
how can isoquants tell us more about the technologt?
you can learn more from about the technology by increasing the number of isoquants
how is the marginal rate of technical subsititution represented on an isoquant?
the slope of the isoquant is the marginal rate of technical substitution
for imperfect substitutions what must the Technical rate of substitution be doing?
it must be diminishing
for perfect substitutes what must the technical rate of substitution be doing?
it must be constant
is a convex combination of two indifferent bundles strictly preffered to indifferent bundles?
yes
what are diminishing returns to factor?
as you increase the input, the marginal product of that input decreases
what is the marginal product of input i?
the marginal product of input i is the rate of change of the output level as the level of input i changes, holding all other input levels fixed
what is constant returns to scale?
doubling of the input will double the output
what is increasing returns to scale?
doubling the input more than doubles the output
what is decreasing returns to scale?
doubling of the input less than doubles the output
