Chapter 8 notes - Chapter 8 The Production Function The...

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Chapter 8 The Production Function The production Function demonstrates the relationship between the quantity of output a firm produces and the amount of inputs that go into the production of that good a production function underlies that firms cost curves Inputs and Outputs a fixed input is an input whose quantity is fixed and canot be varied ie land that cannot be expanded a variable input is an input whose quantity the firm can vary The long run has no real fixed inputs since given a long enough period of time all inputs can be adjusted however, there are fixed goods In the short run. A firms production is constituted by the relationship between the the quantity of labor and the quantity of output, for a given amount of the fixed inout A farms total product curve illustrates the relationship described above (variable labor vs, output) output is on the y axis, inout is on the x axis The slope of the product curve illustrates the marginal product of labor . Marginal product of labor = Change in output/change in labor There are diminishing returns to an input when an increase in the quantity of an input descreases the marginal product of labor. (while holding all other inouts constant) It is essential to understand that these shifts are contingent on everything else being equal, just as we assume no market failures when doing supply and demand. The total product curve depends on a variety of inouts, and if one inout shifts it can totally shift the total product curve From Production Function to Cost Curves
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