INTL 1200 Lecture Notes - Diminishing Returns, Isoquant, Marginal Product

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A production function describes the maximum output that can be achieved with any given combination of inputs. An isoquant identifies all of the different combinations of inputs that can be used to produce one particular level of output. An upward sloping isoquant would mean that if you increased both inputs output would stay the same; sort of like a bad in consumer theory. As a general rule, if the firm has more of all inputs it can produce more output. The marginal product of labour will eventually diminish because there will be at least one fixed factor of production, such as capital. As more and more labour is used along with a fixed amount of capital, there is less and less capital for each worker to use, and the productivity of additional workers necessarily declines. Think for example of an office where there are only three computers.

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