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15 Cards in this Set
- Front
- Back
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What is the production function?
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The production function specifies the maximum output that can be produced with a given quantity of inputs. It is specific to the state of technology. (108)
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What is marginal product?
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The extra output produced by one additional unit of input all other things constant.
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What is average product?
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Total output divided by total input.
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Give the law of diminishing returns.
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This law states that get less and less extra output when we add inputs all other things constant. In other words marginal output decreases and input increases.
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What are constant returns to scale?
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Increasing an input by a given amount leads to increasing the output by the same amount. For example, if you double the amount of input, you double the amount of output. (111)
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What are increasing returns to scale?
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These are called economies of scale. It means that when you add inputs you get out proportionally larger outputs. For example, you put in twice as much input, but get back three times as much output.
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What are decreasing returns to scale?
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Decreasing returns to scale occur when an increase in inputs gives a less than proportional increase in output. For example, you put in 50% more input, but only get 25% more output.
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How do economists define "short run"?
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We define short run as the period where firms can adapt their variable factors (like labor and materials) but can't change fixed factors like new plants or capital equipment.
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How do economists define "long run?"
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The long run is the period where all factors employed by the firm, including capital can be adjusted. (113)
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What are process and product innovation?
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Process innovation is where technology improves production technique. Product innovation is where products themselves are improved or created.
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How does technology change the production function?
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It shifts the production function upward. (114)
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What is labor productivity?
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The amount of output per unit of labor.
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What is total factor productivity?
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Output per unit of total inputs (usually capital and labor). (116)
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Why do firms exist?
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Business firms are designed to manage the production process. They are set up to take advantage of economies of mass production. (118)
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What is a corporation?
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A corporation is a form of business entity which has a legal identity separate from its owners.
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