EC223 Lecture 15: Production Theory
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Document Summary
Production theory: the production function with one variable input and the. Managers determine optimal way to produce by efficiently using scarce resources (inputs) that they have to product goods (outputs) Efficiently using inputs = managers minimize firm"s costs maximization of profits. Production function: shows max. product output achieved from any specified set of inputs. Summarizes technology available and constraints faced by managers. 1. 1 the production function with one variable input. Production function with 2 inputs, one that"s fixed: (cid:1843)=(cid:4666)(cid:2869),(cid:2870)(cid:4667) Firm can change quantity of labour it uses in short run, but can"t change quantity of capital available to use. Assumption: in the long run, all inputs are variable. Average product of labour (ap) (output/worker): how output changes as # of workers vary output, on average, each worker"s responsible for making. Equal to incremental change in output created by small change in use of that input. Represents increase in output resulting from the last worker.
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The law of eventually diminishing marginal returns: (Points : 1)
a. states that each and every increase in the amount of the variable factor employed in the production process will yield diminishing marginal returns.
b. is a mathematical theorem that can be logically proved or disproved
c. is the rate at which one input may be substituted for another input in the production process
d. None of the above
b. the incremental change in total output that can be produced by the use of one more unit of the variable input in the production process c. the percentage change in output resulting from a given percentage change in the amount of the variable input X employed in the production process with Y d. None of the above |
b. the marginal rate of technical substitution c. equal to MPx/MPy d. all of the above e. none of the above |
b. equal to the marginal factor cost of the variable factor times the marginal revenue resulting from the increase in output obtained c. equal to the marginal product of the variable factor times the marginal product resulting from the increase in output obtained d. a and b e. a and c |
b. variable cost c. marginal rate of technical substitution d. total cost e. none of the above |
b. the average product of labor (L) is equal to ?2 c. if the amount of labor input (L) is increased by 1 percent, then output will increase by ?1 percent d. a and b e. a and c |
b. relevant to decisions in which one or more inputs to the production process are fixed c. not relevant to optimal pricing and production output decision facilities d. crucial in making optimal investment decisions in new production facilities e. none of the above |
b. all inputs are considered variable c. some inputs are always fixed d. capital and labor are always combined in fixed proportions |
A linear total cost function implies that: (Points : 1) |
b. average total costs are continually decreasing as output increases
c. a and b
d. none of the above