PAM 200 Chapter 6 - PAM 200 Chapter 6 Inputs- resources,...

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PAM 200 Chapter 6 Inputs- resources, such as labor, capital equipment and raw materials that are combined to produce finished goods Factors of production- resources that are used to produce a good Output- the amount of a good or service produced by a firm Production function- a mathematical representation that shows the maximum quantity of output a firm can produce given the quantities of inputs that it might employ Q= f (l,K) Production set- set of technically feasible combinations of inputs and outputs Technically inefficient- set of points in the production set at which the firm is producing as much output as it possibly can given the amount of labor it employs Technically efficient- set of points in the production set at which the firm is producing as much output as it possible can given the amount of labor it employs labor requirements function- function that indicates the minimum amount of labor required to produce a given amount of output found by inverting the production function total product functions- a production function, a total production function with a single input shows how total output depends on the level of the input increasing marginal returns to labor- region along the total product function where output rises with additional labor at an increasing rate diminishing marginal returns to labor- region along the total product function in which output rises with additional labor but at a decreasing rate diminishing total returns to labor- region along the total product function where output decreases with additional labor average product of labor ( AP L )- average mount of output per unit of labor AP L = total product/quantity of labor = Q/L Marginal product of labor- rate at which total output changes as quantity of labor the firm uses is changed MP L = (change in total product)/(change in total labor) = Q/ L marginal product function rises in region of increasing marginal returns and falls in region of diminishing marginal returns and becomes negative in region of diminishing total returns where Average product is maximum AP L = MP L law of diminishing marginal returns- principle that as the usage of one input increases, the quantities of other inputs being held fixed, a point will be reached beyond which the marginal product of the variable input will
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PAM 200 Chapter 6 - PAM 200 Chapter 6 Inputs- resources,...

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