Heavily weighted on mid term Asad Mansoor 100516945
Ch 8-Behind the Supply Curve: Input and Costs
Ch 8 key concepts
o Production function
o Diminishing returns to inputs
o The various types of costs
o Marginal and average costs
o Short run vs. long run
o Increasing returns to scale
Production Function – relation b/n inputs used and output produced
o Fixed input- quantity of input remains constant for a period of time
o Var. Input- quantity of input fluctuates
Input and Output
o Long run- Period of time in which all inputs can be varied
o Short run-Period in which at least one input is fixed
EG: overtime, a field worker will be so overwhelmed that his marg.
Product will be lower than the prev. worker
Marg. Product first rises as more workers are hired; then declines
o Total Product Curve- Shows how outputs depends on fixed input
Production Func. And TP Curve
o The connection between inputs and output is + but not constant: marg.
Product of labour changes along the pro. Func.
Marg. Product of Labour
o Marg. Product- The increase or decrease in the total cost of a production run
for making one additional unit of an item.
o MPL = =
o MPL = change in output produced by 1 additional unit of labour
o MPL-/\ in quan. Of output when u /\ the quan. Of input by 1 unit
Explain: extra hour of labour, and additional week or a person-year?
Answer: doesn’t matter, as long as it is constant
Total Product(TPL), Marginal Product(MPL) and Fixed Input
o More land(fixed input)=worker produces more. Shifts up in TPL
o MPL/worker is higher when farm is larger. Shifts up in MPL
Prod. Func. To Cost Curves
o Fixed cost not dependant on quan. Of output. So, its cost of fixed input
o Variable cost dependant on quan. Of output. So, it’s the cost of var. input Heavily weighted on mid term Asad Mansoor 100516945
Total Cost Curve(TCC)
o Total cost- prod. A given quan. Of output is sum of fixed cost and var. cost of
prod. That quant. Of output
o TC = FC + VC
o TCC becomes steeper as more output is produced, b/c of dim. Returns