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Lecture 19

ECO100:Introduction to Economics-Lecture 19:Technology, production, and costsPremium

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Lee Bailey

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ECO100:Introduction to Economics-Lecture 19:Technology, production, and costs
Technology is the processes a firm uses to turn inputs into outputs of goods and services.
Production functions
Tells us the maximum amount of output that a firm can produce using different combinations of
its two inputs, labour and capital.
The short run V. The long run
In the short run (SR) at least one of a firm’s inputs is fixed while the other is variable.
In the long run (LR) a firm can vary all inputs.
Production in the short run
Total product (TP) is the amount produced in a given period
Average product of labour (AP) is total product divided by number of workers
Marginal product of labour (MP) is the additional output produced due to hiring an
additional worker.
Law of diminishing marginal returns
Additional units of a variable input to a fixed input will eventually lead to decreasing MP
of the variable input
There is increasing marginal product at the beginning because of specialization.
AP will be increasing if MP>AP, but decreasing if MP<AP
Average product is at maximum when it is equal to marginal product.
Marginal product becomes negative when total products starts to decline.
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