basic production economics deffinitions aec 303_Page_1

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Unformatted text preview: Basic Production Economics Deﬁnitions AEC 303 (Mame \' WWW Average Physical Product (APP) Output (Y) per unit of input (X), or TPP divided by the quantity of a variable input (X) used (Y/X or TPP/X). When X is 0, APP is undeﬁned. APP is zero if TPP is zero, but is never negative. Average Value (of the) Product (AVP) Average Physical Product multiplied by the product price. Capital Money available to purchase inputs. Constant Marginal Product An instance in which each additional unit of input produces the same additional output. Production functions with constant slopes exhibit constant marginal product. Demand Curve (for the variable input X) The portion of the MVP curve that lies between the point of maximum AVP and the point where MVP is zero. Diminishing Marginal Product Each additional unit of input produces less and less additional output. Hence, each unit of input produces less output than was produced by the preceding unit. Production ﬁinctions with slopes that increase at a decreasing rate exhibit diminishing marginal product. Elasticity of Production The percentage change in output divided by the percentage change in a variable input. MPP for one input divided by APP for the same input. A measure of the responsiveness of output to changes in the use of a variable input. Fixed input An input that a farmer does not intend to vary over the planning horizon. Increasing Marginal Product Each additional unit of input produces more and more additional output. Hence, each unit of input produces more output than the previous unit. Production functions with slopes that increase at an increasing rate exhibit increasing marginal product. Inﬂection Point (production function) The point at which the production function changes from increasing at an increasing rate to increasing at a decreasing rate. The point of maximum MPP. The point on a neoclassical production function at which diminishing marginal product begins. Input A good used to produce another good. In a production function, an input appears on the horizontal axis. Intermediate Run A period of time short enough that the farmer treats some inputs as ﬁxed, but long enough that other inputs are considered to be variable. ...
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