Chapter 6 Review

Chapter 6 Review - Chapter 6: Introduction to Production...

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Chapter 6: Introduction to Production and Resource Use LEARNING OBJECTIVES Understand the conditions necessary for perfect competition. Discuss the inputs necessary for the production of a product. Understand, graphically depict, and mathematically derive the main production relationships between inputs and outputs including total physical product, average physical product, marginal physical product, and the stages of production. Understand, graphically depict, and mathematically derive the short-run production costs such as total cost, average total cost, average variable cost, marginal cost, and marginal input cost. Understand the relationship between the short-run production cost curves and the short run physical product curves. Understand, graphically depict, and mathematically derive the important revenue relationships such as total revenue, average revenue, marginal revenue, and marginal value product. Be able to determine the profit-maximizing level of output and the profit-maximizing level of input use and their relationship to one another. CHAPTER SUMMARY The purpose of this chapter was to illustrate the various physical relationships that exist between inputs and outputs with which agricultural economists must be familiar. The major points of this chapter can be summarized as follows: 1. Farm inputs can be classified into land, labor, capital, and management. 2. A production function captures the causal physical relationship between input use and the level of output. 3. The total physical product reflects the level of output of a given level of input use. Marginal physical product represents the change in the level of output associated with a change in the use of a particular input. Finally, average physical product reflects the level of output per unit of input use. In each case, all other inputs are held fixed. The value of the marginal physical product represents the slope of the total physical product curve. No rational farmer would want to produce beyond the point at which the marginal physical product equals zero, because further input use would cause the level of output to fall . 4.
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Chapter 6 Review - Chapter 6: Introduction to Production...

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