Chapter 4 notes

# Chapter 4 notes - Chapter 4 notes I. Short Run vs. Long Run...

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Chapter 4 notes I. Short Run vs. Long Run a. The short run is a period in which the quantity of at least one input is fixed i. A fixed input is any resource for which the quantity can’t vary during the period under consideration ii. A variable input is any resource whose quantity can change in the period in consideration b. The long run is a period in which all inputs are variable II. Production Function - the relationship between physical output and the quantity of resources used in the production process. Note that the production function specifies the maximum amount of output that can be produced with a given amount of resources. III. Short Run Production - the purpose of the production function is to tell us how much output (in this case-blocks) we can produce with varying amounts of inputs (in this case- labor) a. Marginal product (MP) equals the change in total product divided by the change in labor. How many additional blocks are produced per each additional worker employed? b. Law of diminishing returns- after some point, the MP begins to decrease as additional units of inputs are used i. Increasing marginal returns ii. Decreasing marginal returns

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## This note was uploaded on 07/13/2008 for the course ECON 201 taught by Professor Baker during the Fall '07 term at University of Tennessee.

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Chapter 4 notes - Chapter 4 notes I. Short Run vs. Long Run...

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