ECO100:Introduction to Economics-Lecture 19:Technology, production, and costsPremium
This preview shows half of the first page. to view the full 3 pages of the document.
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.
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
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.
You're Reading a Preview
Unlock to view full version