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Chapter 7

Chapter 7- Technology and Production.pdf

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Department
Economics
Course Code
ECON 2310
Professor
B Ferguson

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Chapter 7- Technology and Production October 6, 2013 8:19 PM Definitions Outputs- the physical products or services a firm produces Inputs- the materials, labour, land, or equipment that firms use to produce their outputs Production Technology- a firms production technology summarizes all of its possible methods for producing its output Efficient- a production method it efficient if there is no other way to produce a larger amount of output using the same amounts of inputs Production Possibilities Set- contains all the combinations of inputs and outputs that are possible given the firm's technology Efficient Production Frontier- contains the combinations of inputs and outputs that a firm can achieve using efficient production methods Production Function- a function of the form , giving the amount a firm can produce from given amounts of inputs using efficient production methods Variable Input- can be adjusted over time Fixed Input- cannot be adjusted over time Short Run- a period of time over which one or more inputs is fixed Long Run- a period of time over which all inputs are variable Average Product of Labour- the amount of output divided by the number of workers employed Marginal Product of Labour- equals the extra output produced due to the marginal united of labour, per unit of labour added Marginal Units of Labour- the last units hired, where is the smallest amount of labour an employer can add or subtract Law of Diminishing Returns- states the general tendency for the marginal product of an input to eventual decline as its increased, holding all other inputs equal Isoquant- identifies all the input combinations that efficiently produce a given amount of output Family of Isoquants- consists of a firms isoquants corresponding to all of its possible output levels Marginal Rate of Substitution (MRTS) - the rate at which a firm must replace units of X with units of Y to keep output unchanged starting at a given input combination, when the changes involved are tiny. It equals the slopw of the firm's isoquant at this input combination, times -1 Declining Marginal Rate of Technical Substitution- an isoquant for a production process, using two inputs, X and Y, has a declining marginal rate
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