Chapter 6 Production

Front 1

purpose of a firm

Back 1

turn inputs into outputs

Front 2

production function

Back 2

relationship between inputs and outputs

Front 3

marginal product

Back 3

additional output that can be produced by adding one more unit of a particular input while holding other inputs constant

Front 4

difference between avg product and marginal product

Back 4

marginal eventually reaches zero

Front 5

isoquant map

Back 5

contour map of a firms production function

Front 6

isoquant

Back 6

curve that shows the various combinations of inputs that will produce the same amount of output

Front 7

marginal rate of technical substitution (rts)

Back 7

the amount by which one input can be reduced when one more unit of another input is added while holding output constant.

The negative of the slope of an isoquant

the amount by which capital input can be reduced when one more unit of labor is used holding output constant

- changes in capital input / changes in labor input

RTS must be positive, slope of isoquant negative

Front 8

returns to scale

Back 8

the rate at which output increases in response to proportional increases in all inputs

Front 9

constant returns to scale

Back 9

doubling all inputs double outputs

output isoquants expand proportionally

Front 10

decreasing returns to scale

Back 10

doubling of all inputs yields less than doubling of outputs

isoquants get farther apart as output expans

Front 11

increasing returns to scale

Back 11

doubling all inputs results in more than doubling of output

isoquants get closer together as input expands

Front 12

fixed proportions productions function

Back 12

inputs must be used in fixed ratio

L shaped isoquants

Front 13

technical progress

Back 13

a shift in production function that allows a given output to be produced using fewer inputs

shifts toward origin

Front 14

multifactor productivity

Back 14

change in Qpredicted = f(k10,l10) - f(k5,l5)

change in Qactual = q10 - q5

technical change = change in Qactual - Change in Q predicted