The Production Theory

Question 1

Production function

Answer 1

presents maximum amount of a commodity that a firm can produce from a given set of inputs during a period of time

Question 2

Categories of inputs

Answer 2

Labor, Capital, Land

Question 3

Types of inputs

Answer 3

1) Variable 2) Fixed

Question 4

Two time frames in production

Answer 4

1) short run production function : at least one of the inputs is fixed
2) long run production fucntion _ all inputs adjust or can be changed

Question 5

Total Product

Answer 5

firms overall production

Question 6

The Average product

Answer 6

Quantity of total output produced per unit of a “variable input” such as hours of labor

Question 7

The Marginal product

Answer 7

the change in product output per unit of variable input

Question 8

Law of diminishing returns

Answer 8

as more units of variable input are add to fixed amount of land and capital the change in total output will first rise and then fall

Question 9

Factor-Product relationship 3 stages

Answer 9

helps to make staffing decisions
1) from zero unit of the variable input to where AP is maximized
2) form the max. AP to where MP is 0
3)from where MP= 0 on where MP<0

only stage 2 is rational

Question 10

Product-Product relationship

Answer 10

it is about finding a combination of manufactured products or branches of activity that will bring maximum profit for a given equipment of a company

Question 11

MRT

Answer 11

marginal rate of transformation is the number of unit or quantity of one good that must be sacrificed in order to generate one unit of another item

Question 12

MRT VS MRS

Answer 12

MRT > concerned with supply
MRS > concerned with demand

Question 13

MRS

Answer 13

how many units of B a particular customer group would precieve to be compensation for one less unit of A

Question 14

Factor-Factor relationship

Answer 14

possiblities of substituting one input/factor for another input/factor for producing a given level of output.

Question 15

The two fold object of factor-factor relationship is

Answer 15

i) Minimization of a cost at a given level of output
ii) Optimization of output to the fixed factors through alternative resource combinations

Question 16

Isoquant (Iso-product curve)

Answer 16

locus of various combinations of two inputs yielding the same level of output . Each point on an isoquant represents the maximum output that can be attained with these input combinations,

Question 17

Types of factor-factor relationship

Answer 17

1) Fixed proportion combination of inputs
- such products that can be produced if inputs are added in fixed proportion at all levels of production

2) Constant rate of subtsitution
- the amount of one input replaced by the other input does not change as the added input increases

3) Varying rates of substitution
- it can have increasing or decreasing rate of substitution.
- the amount of one input X1 required to substitute for one unit of another input at a given level of production increases or decreases as the amount of X1 used increases

Question 18

Iso-cline

Answer 18

a line or curve connecting the least cost combinations of inputs for all output levels

Question 19

Expansion path

Answer 19

indicates the best way of producing the different levels of output given the input prices and technology

if it is a straight line > inputs will ber used in the same proportion at all output levels (scale line)

if it is curved > input have various proportions