ECON-UA 2 Chapter Notes - Chapter 7: Diminishing Returns, Sunk Costs, Active Valve Control System

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Chapter 7: production & cost: production is the process of combining inputs to make goods & services a. Inputs include the four resources: technology & production, a firm"s technology refers to the methods it can use to turn inputs into outputs (produced goods or services) i. Assume firm will choose cheapest method: short-run vs. Long-run decisions: adjustments on the amount of inputs used depend on the time horizon the firm"s managers are thinking about, long run: time period long enough for a firm to change the quantity of all its inputs i. Tells us the rise in output when produced when one more worker is hired: marginal returns to labor, typical pattern in many firms is that mpl first increases as more workers are hired, and then decreases. Additional workers may allow production to become more specialized: diminishing marginal returns to labor, mpl is still positive but the rise in output is smaller & smaller w/each ii. iii. successive worker.

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