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# chapter4A - Part 3 Production and Cost Norton Media Library...

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Part 3 Production and Cost Norton Media Library

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Three Levels of Analysis: 1) Production: Describes relationship between Inputs and Output in physical units. Inputs: Factors of Production: Labor, Capital, Land, etc. We look at Increase in Output when inputs use Increase 2) Costs of Production: We add costs of Inputs to production data. Now the relationships are in Dollar terms. Instead of output we look at costs. 3) Profit Maximization: We add information about the price of the output. We compare revenues and costs to evaluate profit. We need to Specify the Market .
Production Process: Combination of Inputs that Leads to a certain level of Output. The production function is a table, graph or equation relating max output rate that can be achieved from any specified use of inputs. Provides information on the state of firm’s technology. Factor of production: An input used in the production of a good or service: Capital, Labor, Land * Fixed factor of production: An input whose quantity cannot be altered in the short run * Variable factor of production: An input whose quantity can be altered in the short run - Short run: at least some of the firm’s factors of production are fixed - Long run: all of the firm’s factors of production can be modified

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The Production Function If L and K are the main inputs Q=F(L,K).
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chapter4A - Part 3 Production and Cost Norton Media Library...

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