ECON231 Study Guide - Midterm Guide: Marginal Revenue, Monopolistic Competition, Oligopoly
9 Aug 2016
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Production is a process of turning different inputs into final outputs. The inputs may include labors, lands, capital, materials etc. production function tries to capture the relationship between inputs and output, therefore, this relationship also represents the technology of production. Given a certain technology as represented by the function f, an amount of capital represented by k and an amount of labor represented by l can be combined to produce some quantity of output represented by x. There are different ways of graphical representations of production functions. X=f (k, l) can be represented by a three-dimensional surface (k and l on x axis and y axis; x on z axis). However, it is awkward to draw and not very straight forward to compare. A more traditional way is to convert three-dimensional diagrams to two dimensions by fixing one of the three variables. Suppose we fixed the level of output at some amount.
